EU Laws Under CBAM Reform: Major Carbon Border Tax Proposal Seeks to Balance Emissions Control with Trade & SME Relief

Brussels, Belgium — The European Union has moved forward with its Carbon Border Adjustment Mechanism (CBAM), proposing reforms to its carbon border tax regime aimed at curbing emissions associated with imported goods, protecting European industries from “carbon leakage,” while also easing burdens on small importers. The reforms are part of a broader simplification effort within the EU’s regulatory framework, balancing climate ambition with trade fairness and economic competitiveness.

The CBAM, originally conceived to require importers of certain carbon-intensive goods (such as steel, cement, aluminium, fertilisers and electricity) to account for the carbon emissions embedded in their production, has entered a transitional phase since October 2023. Under current rules, importers must monitor and report emissions, with full levies to begin in 2026.

In early 2025, the European Commission introduced a proposal under its “Omnibus I” package that simplifies and strengthens the CBAM rules. Key among the changes is the introduction of a de minimis threshold: importers who bring in less than **50 tonnes per year** of CBAM-covered goods would be exempt from the requirements. This change is projected to exempt around 90% of importers—mostly small- and medium-sized enterprises (SMEs) and occasional importers—while still covering roughly 99% of emissions associated with the imported goods in scope.

Other proposed simplifications include streamlined authorisation for declarants (the entities that must declare emissions), simplified processes for calculating embedded emissions, adjusted rules for financial liability and penalties, and measures to account for carbon pricing already paid in third countries. The aim is to reduce regulatory and administrative burdens without diluting the environmental effectiveness of CBAM.

The EU’s push has provoked mixed responses globally. Several trade partners and developing nations, including some BRICS members, have rejected aspects of the mechanism as discriminatory or protectionist. They argue that CBAM could impose unfair costs on their exporters, especially those still building their capacity to decarbonise. Indian officials have voiced concerns that the mechanism will hurt their industries and have sought carve‐outs or adjustments in free trade negotiations.

Inside the EU, the reforms represent an attempt to calibrate environmental policy with economic realities. Many member states, business associations, and especially industries with high trade intensity, have warned that overly burdensome compliance rules could distort trade, increase input costs, or shift production to non-covered regions. On the other hand, climate and environment groups caution that too much simplification could weaken the mechanism’s integrity.

Legislative progress is being made: the European Parliament voted in May 2025 to back the reforms, including the 50-tonne threshold, and further simplification and anti-abuse measures. Negotiations between Parliament and the Council of the EU are underway to finalize the package before full implementation in 2026.

As the rules solidify, observers will watch closely how the EU balances emission reductions, trade relations, compliance burdens, and relationships with partner countries. The success of CBAM may well serve as a test case—can regulatory innovation achieve climate goals without triggering trade wars, stifling development, or undermining small business competitiveness?