According to a leaked legislative proposal seen by the media, the European Commission plans to simplify and strengthen the carbon border adjustment mechanism (CBAM). Under current legislation, CBAM will be phased in from 2024 and 2034 while gradually replacing free allocation under the EU ETS.

However, the draft from the European Commission includes major changes such as: delayed financial requirements for importers from January 2026 to February 2027, exceptions for small importers, stricter penalties for companies that will deliberately avoid compliance and submission date for CBAM declarations extended to October rather than May.

Amid political turmoil, the European Union is currently struggling to find a balance between the environmental goals and maintaining its competitiveness. In this context, in January, the European People’s Party (EPP), the largest political group in the European Parliament, called for a two-year delay on implementation of CBAM arguing that it risks deindustrialisation. 

“If climate policy becomes an obstacle for competitiveness and growth, it will not only fail to have the support of European citizens, but it will also risk increasing global emissions because products will be produced in other regions of the world with higher emissions.”

At a press conference in Brusseles last week, Peter Liese, the  environmental policy spokesperson for the EPP, announced that “the European Commission is finally getting serious about cutting red tape. I expect a bold move to reduce administrative burdens in a first step involving four specific laws this coming Wednesday.”  Among the four laws Liese is referring to is the Carbon Border Adjustment Mechanism (CBAM).

However, “the draft proposal could change before publication and any changes to the EU policy would need to be approved by the European Parliament and EU member countries,” warns Reuters in an article this morning. However, the document could suggest the EU’s willingness to take  a step back from environmental issues, a bearish signal for the carbon price.