“The Commission shall monitor the situation at Union level with a view to monitoring the impact of the CBAM on the Union internal market. Where the Commission, taking into account the relevant evidence, considers that the inclusion of a good in Annex I causes severe harm to the Union internal market due to serious and unforeseen circumstances related to the impact on the prices of goods, it is empowered to adopt delegated acts in accordance with Article 28 to remove this good from Annex I until those serious and unforeseeable circumstances have passed.” – Article 27a – Legislative Proposal Amending the CBAM

 

With the introduction of this article, the Commission would be empowered to remove one or more goods from the list of products covered by the Carbon Border Adjustment Mechanism (CBAM) under Annex I, in the case of “severe harm to the Union internal market due to serious and unforeseen circumstances related to the impact on the prices of goods”. The content of this provision, combined with its retroactive application as  clarified by the Commission, is highly problematic and risks undermining not only the climate credibility of the CBAM but also its very raison d’être.  

While the Legislative Proposal containing the provision has not been officially approved yet, Article 27a recently drew public attention after Trade Commissioner Sefcovic suggested that fertilisers might be removed from the CBAM scope. His announcement was welcomed by several Member States that favour applying this provision to fertilisers. 

Irrespective of its potential application to the fertilisers sector, which raises concerns on its own, Bellona identifies significant shortcomings and risks inherent in the provision. This analysis critically examines Article 27a, and explains why, unless it is removed or substantially amended, it risks undermining the core objectives of the CBAM: preventing carbon leakage for European industries and incentivising decarbonisation abroad. In particular, four main concerns arise: (1) its ambiguous terminology and regulatory inconsistencies; (2) the introduction of retroactive application; (3) risks to the climate integrity and credibility of the CBAM; and (4) its potential to hinder the phase-out of free allowances under the EU Emissions Trading System. 

Ambiguous terminology and regulatory inconsistency 

Article 27a is characterised by significant ambiguity in the language and a lack of precise definitions. The core problem is that this lack of clarity grants the Commission broad interpretative flexibility, which in turn undermines regulatory predictability, legal certainty, and the overall credibility of the framework. Given that the effectiveness of the CBAM relies on long-term investment and consistent application, the vagueness of Article 27a poses a significant threat to the integrity of the regulatory framework: 

• Lack of standards for tracking evidence: The requirement for the Commission to take into account “relevant evidence” lacks precision, as the regulation does not specify whether the evidentiary data should be quantitative, qualitative or both. Furthermore, the responsibility for providing this evidence remains unassigned, creating a gap in transparency and accountability. 

• Inconsistent language around impact on prices: The article fails to define what constitutes “severe harm to the Union internal market” or clarify the specific “impact on the prices of goods”. Whether such harms refer to price volatility, supply shortages or weakened competitiveness, there are still no indicators or threshold in the regulation. Without these, industries face a problem in investment planning as they cannot foresee when the criteria for removing goods might be met. Furthermore, being a carbon pricing measure, CBAM will lead to cost increases by its own design, making this language inconsistent.  

• Unclear scope of conditions and regulatory overlap: The definition of “serious and unforeseen circumstances” remains uncertain, leaving it unclear if it applies to natural disasters, conflicts or simply to human-made market fluctuations. Since the wording is so vague, the potential scope of the article is way too broad. Furthermore, a significant doubt arises regarding how this provision differs from the existing Article 30.7 of the CBAM Regulation, which already functions as a safeguard against “extraordinary and unpredictable events”. It raises questions on how Article 27a differs from existing framework, if at all. It can also possibly lead to legal ambiguity and subjective interpretation of the law across different sectors and Member States. 

• No criteria for reintroduction: The article allows for the removal of goods “until those serious and unforeseeable circumstances have passed,” but provides no objective criteria for determining when that point is reached. While pointing out all the possible reasons that would allow a reintroduction will be objectively challenging, current language creates an uncertainty on when or whether CBAM obligations will be reinforced. 

The concept of retroactive application 

The Commission has confirmed that the adjustments made under Article 27a can be applied retroactively. This means that a delegated act would take effect from the moment the conditions were met rather than from its date of publication. Imports that have already been made and declared could therefore be affected. This mechanism is highly problematic as it directly undermines the fundamental principle of legal certainty under the Rule of Law and its retroactive application directly contradicts the need for a predictable and robust carbon pricing market. Furthermore, companies cannot know at the time of import whether their products will remain in CBAM’s scope, making trade planning unpredictable: 

• Lack of legal and financial foreseeability: Because the mechanism can affect imports that have already been made and declared, it removes the ability for businesses to operate within a stable framework. This lack of foreseeability is a direct challenge to the Rule of Law, as companies cannot accurately calculate the costs or risks associated with their imports in real time. 

• Normalising regulatory instability: Accepting retroactivity within CBAM risks normalising retroactivity in other aspects of the carbon market. This would weaken the long-term stability of the EU’s broader environmental and economic policies.  

Risks to CBAM’s climate integrity and credibility  

Article 27a, particularly when combined with the potential for retroactive application, poses significant risks to the environmental integrity and credibility of the CBAM. Making the rules too flexible to help with short-term economic or political problems also creates doubts in CBAM’s ability to create incentives for emissions reductions by third countries, as stated in Article 1 of the CBAM Regulation. Article 27a’s provision leads to suspension of climate obligations, rather than addressing the underlying technical gaps that are causing market instability.   

• Long-term investment incentives: The unpredictability posed by the article reduces the incentive for both EU and non-EU producers to invest in long-term decarbonisation efforts, CBAM’s most important foreseen consequence. As the effectiveness of CBAM relies on consistent application, this instability directly results in less environmental effectiveness and a downscale of green investments.  

• Regulatory inconsistency on cost increases: Article 27a is meant to address unforeseeable cost increases, yet the Commission’s Implementing Act sets very high default emissions values that, if used instead of actual data, will further raise prices. Rather than allowing for the disruptive provisions in Article 27a, an alternative and more consistent approach would be incentivising the use of verified actual emissions and keep representative default values as a fallback, preserving CBAM’s integrity while avoiding artificial cost spikes. 

• Carbon leakage and global level playing field: If exemptions become routine, the mechanism can no longer ensure that the carbon price of imports aligns with that of domestic production, threatening the level playing field and raising questions among trading partners about the stability and WTO-compatibility of the EU carbon pricing system. Moreover, since CBAM’s primary goal is to prevent carbon leakage, allowing temporary or retroactive exemptions creates loopholes that directly undermine the regulation’s core purpose. 

Free allowances under the ETS 

The removal of goods from the CBAM scope creates an additional uncertainty regarding their status under the EU ETS. The ETS Directive clearly states that “no free allocation shall be given in relation to the production of goods listed in Annex 1 to that Regulation” (art. 10a 1a). This means that the phaseout of free allowances is legally tied to CBAM. The introduction of Article 27a could potentially reopen the door for continued free allocations, which CBAM is designed to replace: 

• Legal gap and weakening carbon price signal: The regulation risks reversing the gradual phase-out transition and stalling the move towards full carbon pricing. Allowing sectors to return to a system of free allowances reduces the financial pressure on industries to decarbonise, undermining the objective of both CBAM and the EU ETS.  

• Difference between sectors: The use of these exemptions risks creating significant distortions between industrial sectors. While some industries will remain on the strict phase-out schedule, others could benefit from these new exemptions, leading to an uneven playing field within the EU internal market.  

• Retroactivity of phase out of free allowances: If Article 27a leads to the reintroduction of free allowances, applying this retroactively could undermine the legal certainty and integrity of the ETS, potentially reversing the gradual transition toward full carbon pricing. If sectors that previously lost free allowances due to CBAM coverage will regain them, the result would be disruptive for the carbon market itself. 

Bellona’s Recommendations

To prevent negative consequences across legal certainty, investment decisions, carbon pricing, and international trade, Bellona Europa strongly recommends that co-legislators delete Article 27a in its entirety. The provision’s ambiguous terminology and regulatory inconsistencies undermine predictability and transparency, while its retroactive application threatens legal certainty, imposes administrative burdens, and incentivises strategic market behaviour. It also jeopardises CBAM’s climate integrity and credibility by weakening decarbonisation incentives, distorting cost signals, and enabling routine exemptions that compromise its effectiveness against carbon leakage. Finally, by reopening the possibility of free allowances under the EU ETS, it risks reversing the phase-out, weakening the carbon price signal, and creating uneven competitive conditions across sectors.  

Removing Provision 27a is therefore essential to maintain a stable and predictable CBAM framework, safeguard the credibility of the EU carbon price, and allow both EU and third-country operators to invest confidently in low-carbon technologies without fear of sudden regulatory reversals. 

If co-legislators consider that the Commission should have the possibility to remove one or more goods from the CBAM in case of extreme and unpredictable cases, Article 27a should be heavily modified and rephrased by: 

• Ensuring co-legislators have the possibility to overlook the process without the use of the emergency procedures 

• Clarifying retroactivity: ensure that provisions under Article 27a are not retroactive. 

• Replacing the term “relevant evidence” with a clear definition of acceptable evidence, assigning the responsibility for providing and verifying this evidence. 

• Clarifying what constitutes “severe harm to the Union internal market” by introducing measurable indicators, such as thresholds for price volatility. 

• Defining “serious and unforeseen circumstances” narrowly, e.g., limiting it to natural disasters, wars, or extreme market shocks, and explicitly exclude normal market fluctuations.  

• Clarifying the relationship with Article 30.7 to avoid regulatory overlap and prevent subjective interpretations. 

Author: Mathilde Agledal, Trainee, Policy Assistant

Contact: Francesco Lombardi Stocchetti, Policy Advisor, Sustainable Finance & Economy