Executive summary

On 26 February 2025, the European Commission (the Commission) released two Omnibus simplification packages (referred to as Omnibus Packages I and II), which focuses on sustainability regulation. The packages aim to recalibrate European Union (EU) rules to facilitate cost-effective policy delivery, targeting a 25% reduction in administrative burdens and a 35% reduction for SMEs by the end of its mandate.

Omnibus Package I aims to eliminate overlapping and disproportionate regulations in the drive toward a sustainable transition, enhance EU companies' competitiveness and simplify EU investment programs.

Omnibus Package I includes amendments to the:

• Corporate Sustainability Reporting Directive (CSRD)
• Corporate Sustainability Due Diligence Directive (CSDDD)
• Taxonomy
• Carbon Border Adjustment Mechanism (CBAM)

If adopted and implemented as set out, the proposals are conservatively estimated to bring total savings in annual administrative costs of approximately €6.3b and to mobilize additional public and private investment capacity of €50b to support policy priorities.

Also, on 26 February, the Commission unveiled the Clean Industrial Deal, a strategic plan aimed at enhancing the competitiveness and resilience of EU industries while accelerating decarbonisation. This initiative addresses high energy costs and global competition by positioning decarbonisation as a growth driver. Key measures include mobilizing over €100 billion for clean manufacturing, promoting demand for EU-made products, and securing access to critical raw materials. The Deal also emphasizes circularity and workforce development, ensuring that Europe remains a leader in sustainable industrial innovation

This EY Tax Alert provides an overview of the proposed changes to the CBAM regulation. For further information on how Omnibus Package I might impact your business, register for the webcast on 13 March 2025.

Background

To stimulate growth, the EU must create a favorable business environment by reducing excessive regulatory burdens, allowing companies to expand, generate quality jobs, attract investments, and secure funding for a sustainable transition aligned with the reaffirmed European Green Deal's objectives. The recent Competitiveness Compass outlines a vision for strengthening the EU's competitiveness and economic prosperity, building on the Draghi "Future of European competitiveness" report's recommendations (as noted in EY Global Tax Alert, EY Global Sustainability Tax Policy Developments January 2025 update, dated 12 February 2025).

The Compass encompasses several initiatives under three core pillars to help meet these goals: (1) closing the innovation gap, (2) a joint roadmap for decarbonization and competitiveness, and (3) reducing dependencies and increasing security.

CBAM inclusion in Omnibus Package I

The Commission has emphasized that the CBAM is a cornerstone measure required to protect the EU's economic interests and avoid carbon leakage. Through significant stakeholder engagements, the EU has recognized the need to reduce administrative burden for the importers of smaller volumes of CBAM-covered goods.

Of the proposed changes, arguably the most fundamental is the introduction of a new CBAM de minimis threshold, intended to address the current disproportionate administrative costs of the emissions addressed. The new proposed threshold will exempt 90% of the current importers of CBAM covered goods. According to the Commission's press release, approximately 182,000 importers will be exempt. Importantly, those remaining in scope will cover approximately 99% of embedded emissions in CBAM covered goods.

It is important to note the planned review of CBAM effectiveness measures may bring importers back into scope. Potential changes include increasing product categories (i.e., those covered under the EU Emission Trading System), covering more downstream products of current product categories and new product categories.

Key changes proposed in the current draft to amend the CBAM regulation

• CBAM de minimis threshold: Importation of CBAM goods up to 50-ton threshold per year will be exempted from CBAM obligations. The rule excludes electricity and hydrogen. The threshold will be reviewed and adjusted on an ongoing basis.
• Timeline: The obligation to purchase certificates to cover CBAM goods imported in 2026 will be deferred to February 2027.
• Simplification of reporting for importers remaining in scope:
• Annual declaration submission date: The deadline for filing of the CBAM declaration is extended from 31 May to 31 August of the following year.
• Authorized CBAM Declarant: Only importers subject to CBAM obligations (i.e., importing more than 50 tons of CBAM goods) must become Authorized CBAM Declarants — a requirement to release CBAM goods for free circulation in the EU.
• Submission of CBAM declarations: An Authorized CBAM Declarant may delegate to a qualified person or third party (note: the importer remains legally liable).
• CBAM certificates holding requirements: The quarterly requirement to hold CBAM certificates is reduced from 80% to 50% of the embedded emissions. Furthermore, the Authorized CBAM declarant should be able to rely on the information submitted in the CBAM declaration in the previous year, for the same goods and third countries.
• CBAM certificate resale: The number of CBAM certificates purchased during a calendar year and subject to repurchase by the authorities will be limited to the total number of CBAM certificates needed to fulfill the CBAM obligations during that calendar year.
• Default values for carbon price paid in a third country: The default or actual carbon price paid in a third country can be deducted from the required number of certificates. For simplification purposes, if information about actual carbon price paid is not available, the EU will provide default values for carbon price paid in a specific country (if relevant).
• Access to CBAM registry: Accredited verifiers and parent companies can access the CBAM registry to register and share relevant data.
• Exclusion from CBAM scope: Non-calcined kaolinic clays will be excluded from the CBAM product scope
• System boundaries for CBAM emissions calculation: Specific finishing processes for downstream aluminum and steel goods will be excluded from the system boundaries of the calculation of emissions to better align with the EU Emissions Trade System methodology.
• Embedded emissions of electricity: For importation of electricity, the CBAM embedded emissions calculation shall only consider carbon dioxide.
• Penalties: Authorities to be able to take into account specific circumstances such as the intentional or negligent behavior of the declarant, therefore allowing for a reduction of penalty amounts in the case of minor or unintentional errors.
• Circumvention: An artificial splitting of imports will be considered to be circumvention (i.e., a practice or an arrangement or a series regarded as not genuine where they are not put into place for valid commercial reasons, which reflect economic reality).
• Monitoring, detecting circumvention and enforcement: Proposed measures would make CBAM more effective by strengthening anti-abuse provisions and developing a joint anti-circumvention strategy together with national authorities.

Next steps — timeline

Proposed amendments included in Omnibus package(s) — including CBAM — are subject to change, as the proposals will be discussed and ultimately negotiated in the trialogue procedure by the three EU institutions (Commission, Parliament and Council). There is no set timeline for when the final regulation is to be agreed upon and published. However, given the political and economic environment, a faster process seems more likely.

Notably, for 2025, there is an ambitious work program of (at least) nine more implementing and delegated acts of CBAM legislation. The impact of the current Omnibus simplification negotiations on the timelines for release of the pending implementing and delegated acts on CBAM, as communicated by the EU Commission in previous notices, remains to be seen.

The proposed Omnibus simplifications also precede a planned review of CBAM effectiveness measures, expected to take place in 2025. The review will cover the future (1) potential extension of CBAM to other product categories, (2) inclusion of more downstream goods and (3) supporting measures for exporters. The report is expected to be released in Q3 2025 and the new legislative proposal on the scope extension of CBAM is planned for early 2026.

Importantly, the current regulation continues to apply until the changes are implemented into the law. Therefore, the quarterly CBAM reporting obligation for the importation of CBAM goods in consignments including goods valued higher than €50 remains in place.

Potential business implications

In accordance with the EU's intention, most of the importers subject to CBAM measures today will be exempt in the near future if they import less than 50 tons of CBAM goods per year. A practical first step is for importers to determine whether they meet this threshold.

Forward business planning remain vital for all businesses, not only for those currently in scope. As part of this year's planned effectiveness measures review, the scope is expected to expand to additional downstream products and further product categories, which will mean many additional businesses are likely to be subject to CBAM obligations.

Carbon pricing regulation has the ability to affect how a business is positioned strategically: carbon intensity of imports or EU manufacturing can serve as a significant cost driver or competitive advantage (in the case of low-emission products). Amid a current wave of deregulation, CBAM and carbon pricing regulation is intentionally designed to, and has the potential to, disrupt supply chains, business models, respectively carbon-intensive manufacturing processes. On the other hand, this poses a significant competitive opportunity for low-carbon products and services.

It is therefore important not to view CBAM in isolation, but to analyze value streams in the fast-evolving EU regulatory landscape (i.e., EU Emission Trading System, EU Emission Trading System II, Energy Taxation Directive, Methane Regulation). CBAM is also linked to the EU Corporate Sustainability Reporting Directive (CSRD) and businesses materially impacted by CBAM or carbon pricing may need to report on these impacts.

In anticipation of a changing CBAM and carbon-pricing impacts, steps to take include assessing and reviewing potential effect on the business model, supply chains, long-term procurement decisions, investment decisions, corporate value, etc., based on objective quantifiable data. This will support better forward planning and provides an opportunity for businesses to take cost-mitigating measures at the right time. At this time, many businesses have not yet analyzed the expected regulatory cost of increased carbon pricing.

Operationally, CBAM will remain a challenge to affected businesses, as the legislative environment is fast moving. Amendments to the EU CBAM regulation are expected to be ongoing and will require close monitoring. Furthermore, businesses should also keep in mind that an increasing number of jurisdictions (e.g., the United Kingdom, Norway, Australia) continue to consider and implement their own CBAM-like measures.