From bureaucracy to efficiency: European Commission modernises carbon border levy

On 26 February 2025, the European Commission presented a package of proposals aimed at simplifying EU sustainability rules and boosting business competitiveness. The package also includes changes to the Carbon Border Adjustment Mechanism (CBAM), designed to reduce the administrative burden and make the measure more effective, the Commission said in its press release.

The proposals focus on reforming sustainability reporting, sustainability due diligence, the EU taxonomy, CBAM and investment programmes. The key aim is to create a more favourable business environment that supports growth, innovation and investment. The main measures include cutting administrative costs by EUR 6.3 billion a year and unlocking up to EUR 50 billion in additional investment.

CBAM review

The first climate import levy under the Carbon Border Adjustment Mechanism (CBAM) entered into force in October 2023, introducing a requirement to report carbon emissions for emissions-intensive products such as cement, iron, steel, aluminium, fertilisers, electricity and hydrogen.

Its aim is to level the playing field between European producers, who pay for emission allowances, and their foreign competitors. However, industry groups point out that obtaining the necessary data from international suppliers is difficult and significantly increases the administrative burden.

The European Commission has therefore proposed changes to CBAM to reduce bureaucracy and make the mechanism more effective. The key change is an exemption for small importers bringing in less than 50 tonnes of covered goods a year. This measure will affect around 182,000 entities, representing 90% of all importers, while coverage of emissions will remain above 99%.

For larger businesses, the rules will be simplified, particularly those on the authorisation of CBAM declarants. Companies will find it easier to calculate embedded emissions and face less demanding reporting requirements, reducing the administrative burden and improving the system’s efficiency.

Further changes are intended to prevent circumvention of the rules and abuse of the system. Controls will be strengthened to make CBAM fairer and more effective. The changes also pave the way for extending CBAM to additional sectors in 2026.

Discussions about extending it are also taking place in the context of negotiations on the new seven-year EU budget and efforts to find funding to repay more than 300 billion euros of debt incurred during the pandemic. A legislative proposal is expected in early 2026 to further strengthen the effectiveness and scope of CBAM as part of the European climate strategy.

“Today, we are making it easier to do business in Europe. By simplifying the Carbon Border Adjustment Mechanism, we are enabling companies to reduce their carbon footprint without compromising their competitive edge. While exempting around 90% of companies from CBAM reporting, we will still capture more than 99% of emissions. This is the first step in a broader review of CBAM,” Wopke Hoekstra, Commissioner for Climate, Net Zero and Clean Growth, said in a press release.

Business reactions

The proposal to simplify CBAM was generally welcomed by analysts and traders, with some changes, particularly those relating to CBAM certificates, described as largely technical. Critics nevertheless warn that while the changes may reduce the immediate administrative burden, they will not alter businesses’ overall financial exposure.

Companies will still have to cover their emissions costs for 2026; only the deadline for reporting them in full will move to 2027. This does not remove the impact, but merely delays it, reports S&P Platts.

Smaller importers will welcome the reduced bureaucracy, but the lack of clear carbon benchmarks remains a key problem, making it harder for businesses to plan orders for 2026. Without these established reference values, the cost of the CBAM levy cannot be calculated accurately, adding to uncertainty about future financial obligations.

The process of setting CBAM benchmarks is still under way, and it remains unclear when it will be completed, although it is expected to be finished by the end of the year. These benchmarks are crucial for calculating the final CBAM charge because they determine the best emissions intensity for each product category. The resulting charge will then be based on the difference between emissions from imported goods and these reference values.

Simplifying sustainability and investment rules

Another key change is the revision of sustainability reporting rules (CSRD and the EU taxonomy), which will now apply only to the largest companies. This will exempt up to 80% of businesses from the requirement.

Some requirements, such as reporting obligations, are being postponed until 2028. At the same time, the administrative burden will be reduced by limiting the number of reports and introducing reporting thresholds, making it easier for companies to access sustainable finance.

The changes also cover corporate sustainability due diligence rules. Checks will now focus only on direct business partners, and their frequency will be reduced from annual assessments to once every five years. Civil liability at EU level will also be removed, leaving the matter to individual member states. The largest companies will also have more time to adapt, as their obligations will be postponed until 2028.

Further reforms aim to optimise European investment programmes such as InvestEU, which are intended to support innovation, green technologies and the competitiveness of European businesses by mobilising both private and public funds.