US probes EU carbon border tax over potential trade barriers
The EU's carbon border tax was designed to prevent companies from shifting production abroad to countries with weaker environmental rules — but the US says it amounts to a discriminatory trade rule.
The United States is examining whether the European Union's carbon border tax, known as the Carbon Border Adjustment Mechanism (CBAM), is adversely affecting American trade with the EU, and is exploring the potential for unfair barriers against American companies. The CBAM, which began in January 2026, applies to imports of aluminium, cement, fertilizers, hydrogen, iron, and steel, with the aim of leveling the playing field for European manufacturers and preventing carbon-intensive production from moving to countries with weaker environmental regulations.
Following its launch, several EU countries requested temporary exemptions for fertilizers, citing concerns about price increases and potential impacts on food security. Under the CBAM, EU importers must track and report the emissions generated in the production of the goods they bring into the bloc. The United States Trade Representative (USTR) is soliciting comments on the potential impact of the CBAM on US trade, as well as the EU's plans to expand the mechanism to additional products, like washing machines and car parts, and to tighten rules to prevent circumvention.
The USTR is seeking information on the implications for American producers in terms of costs, regulatory burdens, access to the EU market, and overall trade with the bloc. US companies have until November 9 to submit their views. This investigation comes in the wake of the World Trade Organization agreeing to investigate the legality of the CBAM at Russia's request, arguing that the tax creates significant trade barriers for EU imports.
Russia also claims that free carbon allowances granted to some heavy industries under the EU's Emissions Trading System (ETS) act as an export subsidy, providing European manufacturers with an unfair competitive advantage. Within the EU, there is ongoing debate over expanding the CBAM, with differing opinions on which products should be included.
While Brussels seeks to include more items, such as solar panels and heat pumps, critics argue that such an expansion would lead to higher prices for businesses and consumers. The Irish Presidency is aiming to finalize the negotiations by an October 20 meeting but is grappling with differing proposals from EU governments and Parliament.
MEPs also oppose a proposal to temporarily exempt certain goods in "serious and unforeseen circumstances," preferring financial support for affected industries through EU funds. The Council is more accommodating, allowing companies to use their actual emissions data if they can provide sufficient evidence, rather than relying on the EU's default carbon values, which Washington claims imposes a "punitive markup" on companies.
The USTR will analyze the impact of the Commission's original proposal and the competing positions of the Council and Parliament to evaluate how each could affect American companies compared to their European counterparts.
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