Expansion of CBAM scope to Automotive, White, and Yellow Goods: A Risky Move with Dire Consequences

The European Union’s Carbon Border Adjustment Mechanism (CBAM), a cornerstone of its ambitious climate policy, could soon expand to include more complex goods such as automobiles, household appliances (white goods), and construction machinery (yellow goods). While this expansion remains hypothetical, it is increasingly seen as a potential strategy to stimulate struggling industries. However, the harsh reality is that such a move would likely exacerbate the crises these sectors are already facing, with far-reaching negative consequences for manufacturers, consumers, and the broader European economy.

CBAM: From Climate Policy to Industrial Intervention

CBAM was initially designed to curb carbon leakage by imposing carbon costs on imports of materials like steel, aluminum, cement, and fertilizers. Extending its scope to complex, carbon-intensive goods such as cars, washing machines, and construction equipment would dramatically shift its function—from a climate-focused tool to a desperate industrial policy intervention. This shift comes at a precarious time when these sectors are grappling with energy price volatility, waning global competitiveness, and structural declines in demand.

Automotive: An Industry on the Brink

Europe’s automotive industry, which contributes over 7% of the EU’s GDP and employs more than 12.7 million people, is already in a tailspin. The twin pressures of high energy costs and fierce competition from Chinese electric vehicle (EV) manufacturers are squeezing profitability. For instance, Volkswagen recently announced plans to shut down three German plants, citing uncompetitive costs and sluggish demand for EVs. (Financial Times)

The inclusion of automotive products in CBAM would further erode the industry’s competitiveness by increasing the cost of imported components and raw materials. Automakers reliant on global supply chains would face higher production costs, which could push more manufacturers to relocate production outside the EU or even shut down operations entirely.

White Goods: Squeezed Margins, Lower Demand

White goods manufacturers, including giants like Whirlpool and Electrolux, are already navigating razor-thin margins due to rising raw material prices and the energy crisis. Introducing CBAM certificates for imported components, such as steel and aluminum used in refrigerators and washing machines, would inflate costs even further.

Higher prices for consumers would inevitably follow, further reducing demand in an already strained market. White goods sales in Europe fell by 7.8% in 2023 alone, and further price hikes could accelerate this decline. The added burden of CBAM could prove catastrophic for an industry that is struggling to maintain profitability.

Yellow Goods: Collateral Damage in Construction’s Downturn

The yellow goods sector, including construction machinery from manufacturers like Caterpillar and Liebherr, is deeply intertwined with the health of the construction industry. As construction activity in Europe has slowed due to rising interest rates and reduced investment, demand for yellow goods has plummeted.

CBAM’s extension to this sector would compound existing challenges. Imported machinery and components—already subject to steep tariffs—would become even more expensive under CBAM, further inflating costs for construction companies. Reduced access to affordable equipment could exacerbate stagnation in the construction sector, leading to a vicious cycle of reduced investment and declining demand.

Why CBAM Expansion Would Fail

1. Rising Costs Without Industrial Gains

Expanding CBAM would impose higher costs on industries that are already uncompetitive on the global stage. Unlike raw materials, where substitution and process improvements are relatively straightforward, the supply chains for complex goods are intricate, making cost recovery through efficiency gains nearly impossible.

2. Consumer Backlash

Higher production costs would translate into higher prices for vehicles, appliances, and machinery, burdening consumers already grappling with inflation. This would reduce demand, further weakening sectors that are critical to the EU’s economic stability.

3. Trade Conflicts and Retaliation

Expanding CBAM to finished goods would invite trade disputes and potential retaliation from major trading partners, particularly the United States and China. These conflicts could further restrict market access for EU exports, compounding losses for manufacturers.

Case Study: ArcelorMittal’s Struggles with High-Carbon Costs

Even before CBAM’s proposed expansion, industries like steel are buckling under the weight of decarbonization costs. ArcelorMittal, one of Europe’s largest steelmakers, has had to curtail production at several plants, including its facility in Asturias, Spain, due to uncompetitive costs exacerbated by high carbon prices. Adding CBAM to the supply chains of downstream industries such as automotive and appliances would only amplify these challenges, leading to cascading shutdowns and job losses.

The Bigger Picture: Undermining EU’s Economic Recovery

While CBAM’s goal of promoting decarbonization aligns with the EU’s climate targets, expanding its scope to include automotive, white, and yellow goods would have disastrous consequences. It would raise costs, stifle demand, and force businesses to rethink their operations within the EU—ultimately undermining the very industries it aims to protect.

At a time when Europe needs policies that balance climate action with economic resilience, an expanded CBAM risks becoming a self-inflicted wound.

Luigi Villani is the owner of GTG Consulting and specializes in analyzing industrial trends in materials science. For more insights, visit www.gtgcons.com.