Executive takeaway
The European Commission is not withdrawing CBAM. It is proposing a slower cost ramp so industry has more time to decarbonize. Taiwan-based suppliers may face lower near-term border carbon costs, but customer requirements for emissions data, traceability and credible transition plans will not ease at the same pace.
Related public briefing: SSBTi Intelligence Brief | EU CBAM Is Not Being Suspended: What Taiwan’s Supply Chain Gains Is Preparation Time
Executive Summary
On 17 July 2026, the European Commission proposed a targeted revision of the EU Emissions Trading System (EU ETS). The most relevant change for Taiwan’s manufacturing and export sectors is a slower phase-out of free EU ETS allowances for industries covered by the Carbon Border Adjustment Mechanism (CBAM). Under the proposal, full phase-out would move from 2034 to 2038.
This changes the speed of the CBAM cost ramp, not the direction of the policy. Data collection, embedded-emissions calculations, importer reporting and CBAM certificate obligations remain in place. The 2026 and 2027 CBAM factors would remain unchanged, while the reduction in free allocation would become more gradual from 2028 onward.
The implications for Taiwan-based companies operate at four levels:
- Financial: The theoretical CBAM certificate requirement after 2028 would be lower than under the current statutory path.
- Data: Reporting, calculation and verification continue. Weak or unsupported data remains a commercial risk.
- Supply chain: EU importers are likely to renegotiate pricing, carbon-cost allocation and data responsibilities.
- Strategy: Companies receive more transition time, but the highest-value investment remains a reliable data foundation and measurable process improvement.
The legal status matters: this is a Commission proposal, not a final enacted rule. It still requires consideration by the European Parliament and the Council of the European Union. The analysis below therefore distinguishes between the current statutory path and the proposed path.
Chapter 1 | What Is Actually Changing?
1.1 Why EU ETS free allocation and CBAM must be read together
EU ETS requires regulated installations in the European Union to surrender allowances for their emissions. Some carbon-leakage-exposed sectors receive part of those allowances free of charge, based on efficiency benchmarks. CBAM requires authorized EU declarants to surrender CBAM certificates for embedded emissions in covered imports, progressively aligning imported products with the carbon cost borne by EU producers.
If EU producers continued receiving extensive free allowances while imports immediately faced a full carbon price, the arrangement could result in excessive protection. The system therefore applies an annual “CBAM factor” that reduces free allocation for EU producers while increasing the proportion of carbon cost applied to imports.
A simplified conceptual relationship is:
Annual CBAM adjustment share = 1 – annual CBAM factor
The legal calculation is more complex. It may also depend on embedded emissions, EU benchmark values, the carbon price effectively paid in the country of origin, the emissions scope and other implementing rules.
1.2 Current path versus the 2026 proposal
The annual values below are based on the proposal summary supplied for this analysis. The European Commission has officially confirmed the policy direction of extending the phase-out to 2038. The annual factors should be checked again against the final legal text after adoption.
| Year | Current CBAM factor | Current adjustment share | Proposed CBAM factor | Proposed adjustment share | Relative effect on imports |
|---|---|---|---|---|---|
| 2026 | 97.5% | 2.5% | 97.5% | 2.5% | No change |
| 2027 | 95% | 5% | 95% | 5% | No change |
| 2028 | 90% | 10% | 91.5% | 8.5% | Slight relief |
| 2029 | 77.5% | 22.5% | 81% | 19% | Relief |
| 2030 | 51.5% | 48.5% | 59% | 41% | Material relief |
| 2031 | 39% | 61% | 48% | 52% | Material relief |
| 2032 | 26.5% | 73.5% | 37.5% | 62.5% | Material relief |
| 2033 | 14% | 86% | 27% | 73% | Material relief |
| 2034 | 0% | 100% | 15% | 85% | Full burden postponed |
| 2035-2037 | 0% | 100% | 15% | 85% | Transitional buffer remains |
| 2038 | 0% | 100% | 0% | 100% | Full phase-out |
The table highlights three points:
- There is no policy relief in 2026 or 2027. Current data preparations must continue.
- The gap grows after 2028. The difference is particularly material between 2030 and 2034.
- The long-term direction does not change. Free allocation still falls to zero and CBAM still moves toward full carbon-cost alignment.
1.3 A delay is not an exemption
The most common interpretation error is to read “free allocation extended” as “CBAM implementation postponed.” CBAM’s legal architecture, declarant requirements, embedded-emissions calculations, certificate pricing and reporting calendar remain operational.
A more accurate description is:
CBAM is already moving. The proposal simply applies less pressure to the accelerator between 2028 and 2037.
Chapter 2 | How Much Could the Cost Change?
2.1 The cost is not simply “emissions multiplied by carbon price”
Companies often use the following expression for an initial exposure estimate:
Indicative CBAM exposure ≈ adjustable embedded emissions × CBAM certificate price × annual adjustment share – eligible carbon-price deduction
The formal calculation may also require:
- Confirmation that the CN code and production route are in scope.
- Determination of whether direct and indirect emissions apply.
- Relevant EU benchmarks and free-allocation adjustment.
- Evidence that a carbon price was effectively paid in the country of origin.
- Rules for actual values, default values and verification.
- Allocation across multiple processes, plants and co-products.
The scenarios below therefore illustrate policy-path differences and are not filing calculations.
2.2 Illustrative 2030 scenario
Assume a product has an annual adjustable emissions basis of 10,000 tonnes CO2e after the relevant benchmark treatment. Assume a CBAM certificate price of EUR 75 per tonne and no deduction for a carbon price paid in the country of origin:
- Current 2030 adjustment share: 48.5%.
- Proposed 2030 adjustment share: 41%.
- Difference: 7.5 percentage points.
- Simplified annual difference: 10,000 × EUR 75 × 7.5% = EUR 56,250.
The proposal can therefore create genuine short-term financial relief. However, poor emissions data may force a company or its importer to rely on a less favorable default value. The financial penalty associated with poor data quality may exceed the savings created by the policy revision.
2.3 Taiwan’s carbon fee may not be fully deductible
Companies should not assume that paying a carbon fee in Taiwan automatically produces an equal CBAM deduction. The European Union examines whether a carbon price was effectively paid, whether it corresponds to the embedded emissions of the imported goods, and whether the evidence satisfies the applicable deduction rules.
Companies should retain:
- The statutory basis of the carbon fee or other carbon-pricing instrument.
- The amount actually paid and the covered period.
- Free thresholds, preferential rates, rebates or exemptions.
- The relationship between the paying entity, production installation and exported goods.
- Documents that can be used by the EU importer and verifier.
The existence of a carbon-pricing system and the deductible amount for a specific product are separate questions.
The following sections are available to Digest members.
A lower theoretical CBAM cost does not automatically protect supplier margins. The decisive issues are contractual allocation, pricing mechanics, verification responsibility and the ability to produce plant-level evidence. The member analysis below provides contract guidance, an exposure framework, a minimum data architecture and a 30/90/180-day action plan.
The Real Footprint Digest 