On 26 February 2025 the European Commission published its first "omnibus" simplification package, a set of proposals to reduce reporting burdens on companies. One of the most concrete changes concerns the carbon border adjustment mechanism, or CBAM, the levy on the embedded emissions of certain imports that is due to move from a reporting-only transitional phase to its definitive phase in January 2026.
The central proposal is a new de minimis threshold. Importers bringing in less than 50 tonnes a year of iron and steel, aluminium, fertilisers and cement combined would be exempt from CBAM obligations. The Commission estimates that the threshold would remove about 90% of importers from the scheme while keeping about 99% of embedded emissions within its scope.
Why the threshold matters
During the transitional phase, which began in October 2023, importers have had to file quarterly reports on the embedded emissions of their CBAM goods without paying anything. That phase exposed a structural feature of EU trade in these products: a very large number of small importers, many of them bringing in modest volumes of fasteners, steel parts or small consignments of aluminium products, alongside a small number of large importers handling most of the tonnage.
The existing de minimis rule was based on consignment value, exempting shipments worth less than 150 euros. That did little to reduce the number of filers. A mass-based annual threshold targets the actual pattern of emissions far more closely. In the Commission's staff working document accompanying the omnibus, the change is framed as removing compliance costs from companies whose imports contribute very little to the emissions CBAM is designed to price.
What stays the same
The proposal does not change the sectors covered, the link to the EU emissions trading system, or the timetable for phasing out free allocation to EU producers in the same sectors. CBAM certificates are priced off the EU ETS allowance price, and the obligation to surrender certificates rises as free allocation under the ETS falls between 2026 and 2034.
Electricity and hydrogen imports are treated separately and are not covered by the 50-tonne threshold. That distinction matters for electricity markets in neighbouring countries that export power into the EU, such as those in the Western Balkans, where CBAM exposure depends on the carbon intensity of their generation and on whether they adopt their own carbon pricing.
Other changes in the package
The omnibus also proposes several procedural simplifications. They include easing the authorisation process for declarants, simplifying the calculation of embedded emissions and the rules on verification, and giving more time for the first annual CBAM declaration. Under the proposal, the sale of CBAM certificates would begin in February 2027, covering imports made in 2026.
The Commission has said a broader review of CBAM, including possible extension to downstream products and measures to address the risk of circumvention, will follow later in 2025. Downstream extension is a significant issue for EU manufacturers, who argue that taxing imported steel but not imported goods made from steel could shift production of finished goods outside the EU.
Implications for steel and aluminium trade
For the main trading partners, the threshold changes little. Large steel exporters such as Türkiye, India, China, Ukraine and South Korea, and aluminium suppliers such as Norway, the UAE and India, ship to large importers that will remain in scope. Those flows will still carry a carbon cost from 2026, scaled by the share of free allocation being phased out and the difference between their embedded emissions and EU benchmarks.
The practical burden for these exporters is data. CBAM rewards producers that can document actual emissions at installation level. Where data are missing, default values set by the Commission apply, and those defaults are designed to be conservative. Exporting plants that can measure and verify emissions have an incentive to do so, because it can lower the certificate cost faced by their EU customers.
Implications for energy markets
CBAM is not an energy tax, but it interacts with energy markets in three ways. First, it links the price of carbon in the EU ETS to trade in energy-intensive goods, which supports the case for decarbonising power supply in exporting countries. A steel mill using electric arc furnaces on a low-carbon grid faces a lower CBAM cost than one using coal-based blast furnaces.
Second, CBAM on electricity applies directly to power trade with non-EU neighbours. The UK, Switzerland and Norway are treated differently because of links between their carbon pricing and the EU system or their participation in the EU ETS, but other neighbours are exposed.
Third, CBAM revenue and the phase-out of free allocation affect the supply-demand balance in the EU ETS itself. Fewer free allowances mean industrial installations must buy more on the market, which is one of several factors that analysts weigh when forecasting allowance prices for the second half of the decade.
A note on prices
The cost of CBAM to importers depends on the EU allowance price, which has traded in a wide band over the past two years as industrial output, gas prices and power sector emissions have shifted. Because certificates are priced off weekly or quarterly averages of ETS auction prices, importers face the same carbon price exposure as EU producers in principle, adjusted for the share of free allocation still in place. Hedging strategies for importers are likely to develop as the definitive phase approaches.
What happens next
The omnibus proposal must be agreed by the European Parliament and the Council before it can take effect. Because the definitive phase starts on 1 January 2026, there is time pressure to adopt the changes during 2025. Both institutions have signalled support for simplification in principle, but the details, including the level of the threshold and anti-abuse rules to stop importers splitting shipments to stay below it, will be negotiated.
The Commission has also said it will monitor whether the threshold stays consistent with the objective of covering nearly all embedded emissions, and could adjust it if needed. For companies, the near-term task is to check whether their annual imports are likely to exceed 50 tonnes, and, if so, to prepare for authorisation and certificate purchases.
For the wider climate policy debate, the change shows the EU trying to keep the price signal of CBAM intact while reducing administrative costs. The mechanism remains the first border carbon adjustment applied by a major economy, and other governments, including the UK, are designing their own versions with reference to how the EU system works in practice.