Brussels is preparing to widen the scope of its carbon border levy as the European Union moves to shut loopholes that officials say allow polluting goods to slip through the net. The European Commission is drafting changes to the Carbon Border Adjustment Mechanism that would extend coverage beyond basic materials such as steel, aluminium and cement to include selected manufactured products that contain large amounts of those inputs. The move is driven by concern that companies can currently avoid the levy by relocating carbon intensive stages of production outside the bloc, while continuing to sell finished or semi finished goods into the EU. With the definitive phase of the mechanism set to start in 2026, pressure is mounting to ensure the system delivers on its promise to prevent carbon leakage as free allowances under the EU emissions trading system are gradually withdrawn.

The planned expansion would pull more downstream products into the scheme, targeting goods where embedded emissions are significant but currently unpriced at the border. Officials and diplomats point to steel and aluminium intensive items such as machinery, construction components and certain automotive parts as prime candidates. The aim is to remove incentives for manufacturers to restructure supply chains purely to dodge the levy, a risk that has become more visible during the current transitional …