EU Carbon Border Taxes to Expand to Auto Parts in 2028
Importers of machinery and auto parts face higher carbon compliance costs as the EU begins phasing out free emissions allowances.
Updated on Oct. 27, 2026 in International Trade
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The European Union is preparing to significantly expand its Carbon Border Adjustment Mechanism (CBAM), potentially adding hundreds of product categories including auto parts and machinery by 2028. This expansion will likely increase the trade volume of South Korean goods subject to carbon pricing from 5.9 percent to as much as 16 percent.
Why it matters
The systematic reduction of free emissions allowances from 97.5 percent in 2026 to zero by 2034 will increase the cost of doing business for global exporters. Operators must prepare for higher logistics and compliance costs as carbon taxation phases out competitive protections for imported goods.
The European Parliament is reviewing a proposal to include 457 additional product categories under CBAM, up from the 180 proposed by the European Commission. These rules carry a cost of 82.32 euros per ton of CO2, with Korean steel exports projected to lose $980.2 million annually by 2034.
The players
European Union
A political and economic union that acts as a regulatory authority over trade and environmental policy.
European Commission
The executive branch of the European Union responsible for drafting new legislation and policy proposals.
European Parliament
The legislative body of the European Union that reviews and amends proposed trade and environmental regulations.
The details
CBAM functions by requiring importers to purchase certificates based on the carbon emissions generated during production. To maintain competitiveness, the EU currently provides free emissions allowances, but these will drop to 39 percent of current levels by 2031 and be eliminated entirely by 2034. As these allowances vanish, the cost per ton of CO2 will increasingly apply to the full value of goods, shifting the cost burden directly onto importers and their suppliers.
Timeline
January 2026: The EU Carbon Border Adjustment Mechanism (CBAM) took effect.
2026: Free emissions allowances were set at 97.5 percent.
2028: Planned expansion of CBAM to cover auto parts and machinery.
2031: Free emissions allowances are scheduled to decrease to 39 percent.
2034: Scheduled elimination of all free emissions allowances.
Market Landscape
This move represents an aggressive expansion of the European Union's Carbon Border Adjustment Mechanism beyond its initial industrial scope. It marks a transition from testing carbon pricing on heavy industry to incorporating complex finished goods like machinery and auto parts into the scheme.
Operators in sectors like automotive and machinery should begin calculating the potential impact of carbon certificate costs on their landed product pricing. Reviewing supply chain carbon efficiency now is critical to mitigating the financial hit as free emissions allowances phase out.
The takeaway
The phase-out of free emissions allowances by 2034 signals a permanent shift toward internalizing environmental costs in international trade. Management should audit current supplier carbon data and model margin sensitivity against the 82.32 euro-per-ton carbon fee to forecast future landing costs.
What happens next
The European Parliament and European Commission are expected to finalize the count of product categories for the 2028 expansion, while exporters must track the 2031 reduction of free emissions allowances to 39 percent.
Further reading
For more on evolving cross-border regulatory trends, see our coverage of International Trade.
Source note: This article includes information reported by Pulse.
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