Extending the CBAM to indirect emissions
The European Commission is considering amending the Carbon Border Adjustment Mechanism (CBAM) to include indirect emissions of CO2 from the use of electricity in the manufacturing of CBAM-covered goods.
CBAM extension: Closing the emissions gap
Free allocation has long been used to address carbon leakage under the EU ETS, but it has key limitations. It only covers emissions up to benchmark levels, fails to reward cleaner EU producers, and forfeits auction revenues that could support decarbonisation. It also creates perverse incentives by making high-emission goods artificially cheap.