Tariff, tariff-er, tariff-est? Omnibus and updates to CBAM (aka the CO₂ tariff)

Authors: Johannes Hartlieb, Cornelia Lanser and Alexander Gimona

The word “tariff,” whose conceptual beauty was recently highlighted by a well-known politician, is currently on everyone’s lips. Long considered a relic of the past, tariff-based trade barriers are experiencing a renaissance. Whether the European Carbon Border Adjustment Mechanism (CBAM) can be classified as a tariff is open to debate; however, this distinction has little bearing on its substantive evaluation.

Since its introduction, the CBAM system has faced significant criticism. The initial simplification measures demonstrate that the European Commission is granting European companies an adaption phase. Nonetheless, criticism of the CBAM has not abated.

This ultimately led the European Commission to take further steps toward simplifying the CO₂ border adjustment system with the “Omnibus 1” package, presented on February 26th, 2025. The aim of the reform is to reduce administrative hurdles for businesses, particularly SMEs, without compromising the effectiveness of the CBAM in terms of climate protection.

Background: CBAM in the transitional phase

The CBAM was introduced by Regulation (EU) 2023/956 and has been in a transitional phase since October 2023. The mechanism aims to establish a carbon pricing system for emissions-intensive products imported from third countries. This is intended to prevent competitive distortions and so-called “carbon leakage” – the relocation of emissions-intensive production to third countries with less stringent climate regulations.

The aim of the reform is to reduce administrative hurdles for businesses, particularly SMEs.

Key points of the “Omnibus 1” initiative

1. De minimis threshold: 99% of imported emissions still covered

At the heart of the reform is the introduction of an annual quantity threshold of 50 tonnes net mass of CBAM-relevant goods per importer. Companies whose production volumes fall below this threshold will be exempt from the CBAM obligations. Around 90% of current CBAM declarants are expected to benefit from this relief – without reducing the mechanism’s climate policy impact: According to the Commission, over 99% of imported emissions will continue to fall under the CBAM.

2. Simplified reporting and calculation requirements

For companies that remain in the scope of the CBAM Regulation, the reform provides several simplifications:

Delegation of reporting: In the future, a so-called CBAM representative can be appointed to submit the CBAM declaration on behalf of the importer. This particularly eases implementation for smaller companies.
Default values for emissions: The calculation of “embedded emissions” – CO₂ emissions generated during production and electricity use in the country of origin – will be simplified through expanded default values. For certain goods such as aluminum or iron, only the emissions of precursor products will be considered in the future.
Introduction of standard CO₂ prices: If the CO₂ price paid in the country of origin cannot be verified, average values set by the Commission may be used in the future. This reduces both the administrative burden and the uncertainty related to crediting previously paid CO₂ costs.

3. Postponement of certificate sales to February 2027

The start of CBAM certificate sales, originally scheduled for January 2026, has been postponed to February 1st, 2027. The delay is due to technical and organizational challenges, such as connecting the CBAM registry to the central sales platform. As a result, companies have more time to prepare for the mandatory phase of the mechanism.

4. Stricter rules to prevent circumvention and abuse

To prevent abuse and safeguard the integrity of the system, the Commission also plans to introduce stricter regulations and develop a joint strategy with national authorities to combat circumvention.

Outlook: expansion and review from 2026 onward

The Omnibus 1 reform is only an interim step. The Commission plans to conduct a comprehensive review of the CBAM in early 2026, including the possibility of extending its scope to cover additional ETS sectors and downstream products. The position of EU exporters will also be taken into consideration.

Until then, the exact shape of the proposals remains subject to the political process: the reform proposals must be adopted by the European Parliament and the Council under the ordinary EU legislative procedure.

Critical assessment

While the new initiative brings some relief, it likely doesn’t go far enough for the affected companies. One key issue that remains unaddressed is the principle of equivalence (export gap):

This existing gap for exporting EU companies creates an inequality of opportunities for EU businesses in third-country markets. The border adjustment only applies to imports; exports by EU companies to non-European countries remain unregulated. As a result, European companies exporting to third countries have to bear CO2 costs, while companies based in third countries do not incur comparable additional costs. This situation encourages “carbon leakage” and hinders the transformation of industries that are particularly affected, such as cement or steel. Currently, free allowances are helping to offset this, but these are already being reduced significantly and will phase out by 2034.

The planned amendments to the CBAM regulation under the Omnibus 1 initiative thus provide some relief for certain companies – particularly SMEs – and contribute to the operational feasibility of this complex instrument. Companies should closely monitor ongoing developments, review their supply chains, and prepare early for potential expansions of the mechanism.

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