CBAM anti-circumvention, resource shuffling and abusive supply-chain restructuring

CBAM Anti-Circumvention: Why Resource Shuffling Is Now a Sourcing and Documentation Problem

Last updated · August 10, 2026

CBAM's definitive phase has been live since 1 January 2026. Real money is now at stake: every tonne of embedded carbon in a covered import will eventually require a certificate surrender, with the first annual declaration due on 30 September 2027. That financial reality has sharpened attention on a question that barely registered during the transitional reporting period: what stops a non-EU producer from gaming the system by routing its cleanest output to the EU while continuing to sell dirtier product everywhere else?

The answer, right now, is: not enough. That gap is precisely why the European Commission published a legislative proposal in December 2025 - COM(2025) 989 - to strengthen CBAM's anti-circumvention framework. The Council agreed its position in June 2026. The file is still moving through the ordinary legislative procedure and is not yet law. But the direction is clear, and the documentation implications are already live.

What the December 2025 Package Actually Did

On 17 December 2025, the European Commission released a package of implementing and delegated acts to make CBAM operational for its definitive phase starting on 1 January 2026, alongside a proposal to amend Regulation (EU) 2023/956 to expand its scope to downstream products and introduce further anti-circumvention measures. The implementing acts - covering default values, certificate pricing, embedded-emissions methodology, and verification principles - are in force. The amending proposal (COM(2025) 989) is not.

The proposal's anti-circumvention provisions were explicitly built on the Steel and Metals Action Plan of March 2025, which had flagged the risk that carbon leakage in CBAM-covered goods could shift further downstream in the value chain, as well as the risk of circumvention of CBAM objectives. During the transitional period, national competent authorities, customs authorities, business associations, and individual companies all raised concerns that the existing regulation contained insufficient safeguards against the risk of misdeclaration of emission intensities and the risk of abusive practices.

Two distinct circumvention forms are now formally on the table.

Circumvention Form 1: Resource Shuffling

What it is

Resource shuffling is a carbon leakage avoidance strategy where foreign producers or traders manipulate accounting and trade flows by exporting their cleanest, low-carbon goods to the EU - to minimise the CBAM cost - while diverting their dirtier, high-emission production to unregulated markets. Total global emissions do not fall. The producer simply sorts its output by destination.

The European Parliament received a formal written question on this in early 2025, noting that such practices allow exporters to direct their cleaner production to the EU while continuing to use more carbon-intensive methods in external markets, with the result that competition is distorted and the global reduction of emissions is undermined.

Why it defeats the purpose of CBAM

CBAM's core logic is that a tonne of steel produced in a high-carbon facility should carry the same carbon cost whether it is made inside or outside the EU. Resource shuffling breaks that logic without breaking any rule that currently exists in the regulation. A producer with, say, three blast-furnace installations at different emission intensities can simply allocate its lowest-carbon output to EU-bound shipments. Each individual consignment may carry a perfectly accurate, verified emission intensity figure. The problem is systemic, not transactional.

Why it is hard to detect from a single consignment's paperwork

This is the crux of the documentation problem. A customs officer - or even an accredited CBAM verifier - reviewing a single shipment's documentation sees the emission intensity of the specific installation that produced those goods. What they cannot see from that paperwork alone is whether the producer has simultaneously increased the carbon intensity of its non-EU sales to compensate. The verified figure may be entirely accurate for that consignment and still represent a form of gaming at the portfolio level.

The Commission's proposal introduces a new concept of "abusive practices" in Article 3(35) of the amended regulation, capturing conduct that seeks to gain a benefit by unduly avoiding, in whole or in part, CBAM financial liability. Under the proposal, the Commission would be empowered to act against substantiated attempts to circumvent CBAM's financial obligations, including by requesting additional evidence where reported actual values are deemed unreliable and, in such cases, relying instead on country-specific default values.

Resource shuffling does not require any falsification of documents. A producer can report a genuinely low emission intensity for an EU-bound consignment while simultaneously running higher-carbon production for other markets. The circumvention is in the allocation decision, not in the paperwork — which is exactly what makes it hard to police from a single declaration.

Circumvention Form 2: Artificial Supply-Chain Restructuring

The second form is newer and more explicitly targeted at the default-value architecture of CBAM itself. The Commission's proposal introduces a new form of circumvention: the artificial restructuring of supply chains in order to benefit from lower default values.

Default values under CBAM are set at a significant mark-up above average actual emissions - currently 10% to 30% above the average for most sectors - precisely to incentivise producers to report actual values. But default values vary by country and product category. A supply chain that is restructured - not for genuine commercial reasons, but specifically to route goods through a jurisdiction with a more favourable default value - could reduce a declarant's certificate obligation without any real-world emissions reduction.

The existing methodology regulation already contains a provision that splitting an installation into different installations, with the result that production routes otherwise pertaining to a single production process are carried out in separate installations, shall only be allowed where the operators demonstrate valid commercial reasons for this split that are related to their economic activity. The December 2025 proposal extends this logic to the supply-chain level.

The Commission would be empowered to investigate and take action against complex circumventive practices consisting of artificially adjusting the supply chains of goods to benefit from lower default values.

Where the Legislation Stands: Council Position, June 2026

On 12 June 2026, the Economic and Financial Affairs Council (ECOFIN) adopted its position on the Commission's CBAM review proposal. The Council's position broadly aligns with the Commission's original proposal but adds refinements.

On anti-circumvention specifically, the Council largely agrees with the Commission's original proposal, which introduces new measures bringing pre-consumer metal scrap into CBAM's scope and empowering the Commission to act when deceptive practices are detected during reporting by high-risk companies. The Council's position includes more robust mentions of melt-and-pour rules and a more explicit recognition that non-European manufacturers might bypass the system by engaging in resource shuffling.

The Council also widened the downstream product list to roughly 200 metal-intensive goods, compared with approximately 180 in the Commission's original proposal.

The European Parliament's ENVI committee has passed an indicative vote setting out its position, with a full plenary vote expected in September 2026. The file will then move to trilogue negotiations. None of this is law yet. The anti-circumvention provisions in COM(2025) 989 are proposed amendments to Regulation (EU) 2023/956 and must complete the ordinary legislative procedure before they take effect.

Legislative status as of August 2026. The implementing acts that operationalise the definitive CBAM phase (default values, certificate pricing, verification rules, etc.) are in force. The amending proposal COM(2025) 989 — which introduces the 'abusive practices' definition, resource shuffling provisions, and downstream scope extension — is still going through the ordinary legislative procedure. Council agreed its position in June 2026; Parliament's plenary vote is expected in September 2026; trilogue negotiations follow. Implementation of the new provisions is not expected before 2028 at the earliest.

Melt-and-Pour Origin Rules: Plain English

The Council's stronger references to melt-and-pour rules deserve a brief explanation, because this concept sits at the intersection of customs origin law and CBAM's emissions-tracing logic.

What "melt and pour" means. Under a melt-and-pour origin rule, the country of origin of steel is determined by where the crude steel was first melted and cast - not by where it was subsequently rolled, coated, cut, or fabricated. The country of origin is no longer the country of last substantial transformation but the country where the crude steel was first melted and poured.

Why it matters for CBAM. The melt-and-pour criterion conceptually aligns with the CBAM requirement to capture embedded emissions at the crude-steel stage. If origin follows the furnace, then routing semi-finished steel through a low-cost processing country cannot change the declared origin - and therefore cannot change the applicable default value or the emissions attribution. Under the proposed melt-and-pour approach, importers would be required to provide appropriate evidence such as a mill certificate to show where the raw steel was melted and poured.

The documentation challenge. This is where theory meets industrial reality. There is no laboratory method capable of identifying the country in which steel was melted - the melting stage leaves no chemical marker, no structural signature, no metallurgical fingerprint. The system rests entirely on documentary trust. Mill test certificates identify the melt origin, but by the time a product reaches the EU border, the chain of custody between the original melt certificate and the specific lot presented to customs may involve multiple intermediaries, processors, and re-rollers. Importers without end-to-end traceability will need to build it.

What This Means for Importers Right Now

The anti-circumvention provisions in COM(2025) 989 are not yet law. But the documentation environment they describe is already the right standard to aim for - both because the rules are coming, and because the existing verification framework already requires that actual values be genuinely installation-specific and auditable.

Questions to ask your supplier today

On installation-level allocation:

Which specific installation produced the goods in this consignment?
Does the supplier operate multiple installations producing the same product? If so, how is output allocated across them?
Can the supplier provide production records showing that the reported emission intensity reflects the actual output of the named installation, not a blended or averaged figure?

On the audit trail for low reported values:

If the reported emission intensity is significantly below the applicable default value, what is the explanation? Is it a genuinely low-carbon production route (e.g., electric arc furnace with renewable electricity), or is it a paper allocation?
Has the emission intensity been verified by an accredited third-party verifier under Commission Implementing Regulation (EU) 2025/2546? From 2026 onward, only verified emissions data is accepted for actual-value declarations.

On melt-and-pour traceability (steel):

Can the supplier provide mill test certificates identifying the country of melt and pour for the crude steel used?
If the product has passed through intermediary processors, is there a documented chain of custody back to the original melt?

Why installation-specific data creates an audit trail

CBAM requires emissions to be calculated at the level of the individual production installation; company-wide averages or regional emission factors are generally not sufficient. This requirement is not just a technicality. Installation-level data creates a paper trail that is inherently harder to shuffle than a company-level average. If a supplier reports a low emission intensity for a specific named installation, and that figure is verified by an accredited verifier who conducted a site visit, the declaration is anchored to a physical facility with a documented production process. That is a fundamentally different evidentiary position from a declaration based on a company average or a default value.

The retroactive exposure risk

The financial obligation under CBAM is already retroactive in one important sense: importers will purchase and surrender certificates in 2027 for goods imported throughout 2026, and the emissions data being collected right now determines what those certificates will cost. If an anti-circumvention investigation were to find that reported actual values were unreliable - and the Commission were empowered to substitute country-specific default values - the certificate obligation for affected declarations could increase substantially after the fact.

The Council's June 2026 anti-circumvention focus signals that enforcement will move toward more sophisticated scrutiny of supply chain structures and emissions data accuracy in subsequent compliance cycles. The quality of first-cycle compliance in 2026 is therefore not just a current-year obligation - it is a strategic baseline that will influence how national competent authorities approach future declarations.

The Bigger Picture

Resource shuffling and artificial supply-chain restructuring are not exotic edge cases. They are the predictable responses of commercially rational actors to a border carbon price that applies to some markets but not others. The Commission, the Council, and the steel industry all recognise this - which is why the legislative reform process is moving as quickly as it is.

For importers, the practical implication is straightforward: a CBAM declaration that relies on a low reported emission intensity is only as defensible as the documentation behind it. If you cannot explain, with installation-level evidence, why your supplier's reported figure is genuinely low - rather than a product of allocation decisions that look different in other markets - you carry a documentation risk that will only grow as enforcement matures.

The downstream scope extension (proposed for 1 January 2028, still subject to legislative procedure) will bring this same logic to a much wider set of metal-intensive goods. We have covered that in a separate post on the proposed scope expansion. The anti-circumvention framework described here will apply to those products too.

For now, the most important thing an importer can do is treat the supplier conversation about installation-level allocation not as a compliance formality, but as a sourcing due-diligence question - one that belongs in procurement contracts, supplier questionnaires, and annual declaration reviews alongside price and lead time.