On 17 July 2026, the European Commission proposed a targeted revision of the EU Emissions Trading System (EU ETS). The change most relevant to Taiwan-based exporters is a slower phase-out of free emission allowances for industries covered by the Carbon Border Adjustment Mechanism (CBAM), with full phase-out moving from 2034 to 2038 under the proposal.
The announcement can easily be misread in two ways: that CBAM has been postponed, or that companies can pause their preparation. Neither interpretation is accurate.
The conclusion in one sentence
The EU is not cancelling CBAM. It is adjusting the cost ramp. Taiwan-based companies are receiving a longer transition window, not a four-year exemption.
CBAM has already entered its definitive phase. Embedded-emissions calculations, importer declarations, verification requirements, certificate pricing and supply-chain data requests continue. The proposal changes the pace at which free EU ETS allowances are withdrawn from CBAM sectors. This would reduce the near-term CBAM adjustment applied to imports, but it would not remove the mechanism.
What would change under the proposal?
1. Full phase-out of free allocation would move to 2038
The EU ETS uses free allocation to reduce carbon-leakage exposure for emissions-intensive industries. CBAM gradually requires imported goods to bear a carbon cost comparable to that faced by EU production. The two systems must be aligned so that EU producers do not receive both free allowances and full border protection.
The current framework completes the phase-out in 2034. The new proposal would extend the transition to 2038 and slow the reduction from 2028 onward.
2. Near-term effects in 2026 and 2027 would be limited
Under the proposed path, the CBAM factors for 2026 and 2027 would remain at 97.5% and 95%. Companies should not stop collecting emissions data or preparing for certificate-related obligations on the assumption that the reform changes the immediate timetable.
3. This remains a proposal, not final law
The proposal still requires consideration by the European Parliament and the Council of the European Union. The final dates, annual factors and accompanying measures may change. Companies should maintain separate tracking for the rules currently in force and for the proposed path, rather than treating a policy announcement as an enacted compliance rule.
What does this mean for Taiwan-based companies?
First, near-term cash costs may be lower, but customer data requests will not slow at the same pace
A slower phase-out means that, for the same level of embedded emissions, the number of CBAM certificates theoretically required after 2028 could be lower than under the current path. This provides meaningful cost relief for directly covered products in iron and steel, aluminium, cement, fertilizers, hydrogen and electricity.
EU importers will still need product-level embedded-emissions information. A Taiwan-based supplier that cannot provide traceable and verifiable data may still face default values, repeated information requests, lower supplier ratings or pressure to absorb part of the carbon cost.
Second, the central competitive issue remains data credibility
Lower near-term payment exposure does not reduce the need for reliable data. Companies still need to answer:
• How much material and energy does the product use?
• How are direct emissions and relevant process emissions calculated?
• Can the data be traced to the plant, production line and reporting period?
• Are emission factors, system boundaries and allocation methods applied consistently?
• Can a customer or verifier reproduce the calculation?
The real threshold is not producing the lowest possible number. It is operating a stable, repeatable and auditable data process.
Third, companies that do not export directly to the EU are not automatically outside the risk perimeter
The legal CBAM obligation mainly sits with the EU importer, but costs and data demands move upstream through procurement relationships. Material suppliers, component makers, processors and traders in Taiwan may be asked to provide product-carbon information even when they do not act as the exporter of record to the EU.
Fourth, the additional time should be used to replace one-off reporting with a management system
Collecting data separately for every order is expensive and error-prone. The longer transition should be used to establish:
1. A product and customs-code process for determining CBAM scope.
2. Monthly plant-level ledgers for energy, materials and production volumes.
3. Standard formats for supplier emissions data and supporting evidence.
4. Version control for emission factors and calculation models.
5. Internal review and verification before information is sent to customers.
Three actions recommended by SSBTi
Within 30 days: map exposure before buying a system
Identify EU-bound products, CN codes and customs classifications, EU importers and contractual responsibilities. Determine whether each product is directly covered by CBAM or is an upstream input for which customers are likely to request emissions data.
Within 90 days: complete one representative product-data pilot
Select a high-volume product or one that matters to a priority customer. Build the complete data chain from materials, energy and production processes to the emissions result. Record the source, responsible department and evidence for every significant data point.
Within 180 days: integrate CBAM data with LCA and product-carbon-footprint work
CBAM, product carbon footprints, EPDs and customer Scope 3 requests use different rules and boundaries, but share much of the same underlying activity data. Build one reusable and traceable data foundation, then generate different outputs for different reporting frameworks.
The SSBTi view
This reform does not represent an EU retreat from climate policy. It is a recalibration of the pace among industrial competitiveness, energy costs and decarbonization. The most dangerous interpretation for Taiwan-based companies is that CBAM has been delayed and preparation can wait. The more practical conclusion is that the cost curve may become less steep, creating a lower-cost window in which companies can strengthen their data, assurance and decarbonization capabilities.
Policies will change, customers will change and carbon prices will fluctuate. Traceable product data and a capacity for continuous improvement remain the competitive assets that companies can control.
Further reading | Full analysis and corporate action tools
The Digest member article examines the annual cost path, contractual responsibility, pricing mechanisms, sector exposure, data governance and a 30/90/180-day action plan:
EU CBAM Free-Allocation Phase-Out Extended to 2038: What the New Cost Curve Means for Taiwan-Based Suppliers
Sources and important notice
• European Commission: EU ETS and the 2026 revision proposal
• European Commission: Free allocation for industrial installations
• European Commission: CBAM certificate prices
• European Commission: 2025 CBAM simplifications
Editorial cut-off: 20 July 2026. The proposed extension to 2038 has not completed the EU legislative process. Compliance and filing decisions should follow the final legislation, the latest European Commission guidance and appropriate professional advice.