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.

Washington is investigating whether the European Union’s carbon border tax is harming US trade and whether plans to expand it would create unfair barriers for American companies, according to an official document published on Thursday.

The EU’s Carbon Border Adjustment Mechanism (CBAM) took effect in January 2026, covering imports of aluminium, cement, fertilisers, hydrogen, iron and steel.

It aims to level the playing field between European manufacturers and foreign competitors while preventing carbon-intensive production from shifting to countries with weaker climate rules.

Shortly after its launch, several EU countries sought temporarily exemptionsfor fertilisers, warning that the tax would push up prices and could undermine food security.

Under CBAM, EU importers must monitor and report emissions generated in producing the goods they bring into the bloc. Washington argues that the system is creating financial liabilities for American companies, raising the prospect of fresh trade tensions with President Donald Trump’s administration.

The timing is significant. Brussels is negotiating plans to extend CBAM to more products, including washing machines and car parts, while tightening rules to prevent companies from circumventing the tax.

“The USTR (Office of the United States Representative) is seeking comments on the impact of the CBAM on US trade with the EU, as well as the potential impact of the EU’s proposals to expand CBAM coverage. Such comments will help inform continued USTR and US government engagement with the EU on CBAM,” the document says.

Washington will examine the impact on costs, regulatory burdens and access to the EU market for American producers, as well as direct and indirect exports and overall trade with the bloc. US companies have until November 9 to submit their views.

The move comes shortly after the World Trade Organisation (WTO) agreed to establish a panel at Russia’s request to examine the legality of CBAM. Moscow argues that the carbon border tax creates “significant trade barriers” for goods entering the EU.

Russia also claims that free carbon allowances granted to some heavy industries under the EU’s Emissions Trading System (ETS)amount to an “export subsidy” designed to give European manufacturers a competitive advantage, according to the WTO.

EU splits

Within the EU, governments and the European Parliament remain divided over plans to expand CBAM, particularly over which products should be covered, according to a Council document seen by Euronews.

The European Commission says the expansion is intended to prevent carbon-intensive imports from escaping the bloc’s climate rules.

Ireland, which currently holds the rotating EU Council presidency and is brokering negotiations, says both governments and Parliament consider the Commission’s proposed expansion too narrow. But they disagree over which additional products to include.

Belgium Green MEP Sarah Matthieu told Euronews that the EU should include critical clean tech goods such as solar panels and heat pumps.

Such a move would protect European manufacturers, but critics argue it would also push up prices for businesses and consumers.

The Irish Presidency, which wants to seal the deal at a key meeting on 20 October, has asked EU capitals to identify which Parliament proposals they could accept and where they would be ready to compromise.

Dispute over carbon calculations

Another sticking point is the Commission’s proposal to allow certain goods to be temporarily exempted from CBAM in “serious and unforeseen circumstances”.

MEPs oppose the measure, arguing that it could weaken the mechanism and give the Commission excessive powers without sufficient parliamentary scrutiny. Instead, they favour financial support for affected industries through redistribution from EU funds.

MEPs also want a tougher system to automatically apply default carbon values to high-risk goods and origins unless specific exceptions are met.

The Council is more flexible, allowing companies to continue using their actual emissions data if they can provide sufficient evidence.

CBAM’s default values are calculated using country-specific, sectoral and energy data to estimate the emissions generated in producing imported goods.

Washington, however, argues that the “EU adds a punitive markup” to these estimates, effectively penalising companies that do not provide their own emissions data.

The Irish Presidency has asked governments whether Parliament’s approach could create practical difficulties for importers and national authorities – concerns also raised by Washington.

According to the US document, Washington will assess the Commission’s original proposal and the competing positions of the Council and Parliament to determine how each could affect American companies compared with their European rivals.

The Commission did not respond to a Euronews request for comment at the time of publication.

Source: www.euronews.com