EU’s clean energy goals set to hold up after carbon tariff reset

The European Union’s decision to exempt most importers from its pioneering carbon border tariff is less a bureaucratic retreat than a pragmatic affirmation of climate ambition. With this move, which spares around 90 percent of importers, mostly small and medium-sized businesses, from the Carbon Border Adjustment Mechanism (CBAM), the EU has demonstrated that it can adapt to real-world pressures without sacrificing its green goals.

“It’s a fair trade-off,” Milan Elkerbout, Fellow and Director of International Climate Policy Initiative at Washington DC-based Resources for the Future, told Energy Connects. “You leave thousands of importers out of the compliance burden, but you still regulate the vast majority of emissions.”

Larger importers in scope

On May 22, the European Parliament approved the reset with a resounding 564-20 vote. The new rules introduce a 50-metric-ton annual threshold, below which importers – primarily SMEs – are exempt from CBAM’s requirements.

This means roughly 180,000 companies will not face costly bureaucracy, with the revised scheme leaving only about 20,000 larger importers in scope. Crucially, these exempted firms account for less than 1% of the emissions targeted by CBAM, so more than 99% of the carbon embedded in relevant imports will still be regulated.

“The administration of a policy like CBAM can be really complicated – there’s a lot of reporting and measurement of the carbon footprint of industrial goods. It absolutely makes sense to leave out importers who only bring in small quantities. The focus should be on large industrial goods, the huge steel bars, cement, and aluminum imports.”
- Milan Elkerbout, Fellow and Director of International Climate Policy Initiative at Resources for the Future

Lawmakers argue that this proportional approach supports innovation and sustainable growth in sectors often sidelined by high regulatory costs, while keeping the EU’s climate ambitions credible. According to EU Parliament rapporteur Antonio Decaro, the reset “enables us to simplify matters for companies without dismantling or weakening the CBAM.”

From experiment to targeted tool

CBAM’s evolution reflects the EU’s strategic thinking around environmental integrity and streamlining compliance when it comes to carbon tariffs. Launched in October 2023 as a transitional, non-tariff reporting obligation, the mechanism was designed to gather data and test compliance before becoming fully compulsory.

The original plan was to require all importers of carbon-intensive goods – iron, steel, aluminum, cement, fertilisers, electricity, and hydrogen – to buy carbon certificates from 2026, mirroring the EU’s own Emissions Trading System (ETS). The goal: prevent “carbon leakage” by ensuring foreign producers face the same climate costs as EU manufacturers.

Tackling the complexity of CBAM

But as the pilot phase unfolded, the sheer complexity of the scheme became clear. Thousands of smaller businesses faced daunting compliance burdens, risking backlashes and undermining support for the broader climate agenda.

“The administration of a policy like CBAM can be really complicated – there’s a lot of reporting and measurement of the carbon footprint of industrial goods,” Elkerbout noted. “It absolutely makes sense to leave out importers who only bring in small quantities. The focus should be on large industrial goods, the huge steel bars, cement, and aluminum imports.”

CBAM’s influence is already being felt well beyond Europe. Its mechanism is designed to credit carbon prices already paid abroad, creating incentives for other countries to adopt similar measures.

In particular, its introduction has spurred other regions to consider or accelerate their own carbon pricing schemes, including the UK (launching its own CBAM in 2027), India (developing a cap-and-trade market), and China (expanding its emissions trading system).

Still, all those policies trying to address leakage and level the playing field in international trade in turn raise equity concerns.

“Some imports that might be affected by CBAMs originate in developing countries, including least-developed ones, which are responsible for small shares of global greenhouse gas emissions and negligible shares of historical emissions, ” notes the May 2025 brief that Elkerbout authored with Katarina Nehrkorn, also a fellow at  Resources for the Future and David Kleimann, Senior Research Associate at the International Economic Development Group ODI Europe.

Global impact and governance issues

“This makes CBAMs relevant to fundamental international climate policy governance issues: how to distribute the efforts of cutting global emissions, given widely divergent stages of economic development and historical responsibility across roughly 200 nations,” the brief says.

“The current state of geopolitics and resistance to multilateral institutions makes for a gloomy outlook on the prospects for increased collaboration between countries. This makes bilateral diplomacy even more important to ensure that developing countries are engaged before new climate and trade laws are adopted,” say Elkerbout, Nehrkorn and Kleimann.

Even after the EU scheme recalibration, much of the administrative challenge of the CBAM weighs on producers in non-EU nations, chiefly the developing countries. While new technologies – such as AI-powered emissions tracking – may eventually help on the reporting part, notes Elkerbout, “for now, there’s a lot of trial and error for both regulators and companies.”