The EU Wants You to Buy a Heat Pump. Parliament Just Voted to Put a Carbon Price on It.

CBAM started with steel, aluminium, cement and other basic materials. Parliament now wants it to reach 457 downstream product categories — including heat pumps, solar panels and appliances. The harder question is what happens to the money.

Europe wants you to electrify.

Replace the gas boiler with a heat pump. Put solar panels on the roof. Use electricity instead of fossil fuels wherever possible.

The European Commission's electrification strategy explicitly calls for faster electrification of buildings, transport and industry, and sees residential and industrial heat pumps as part of that transition.

Then, on 15 September, the European Parliament voted to extend the EU's Carbon Border Adjustment Mechanism — CBAM — much further into the products that make that transition possible.

The vote was decisive: 464 in favour, 50 against and 159 abstentions. Parliament's negotiating position would extend CBAM from basic carbon-intensive materials into a much broader range of downstream goods.

The Parliament position covers an estimated 457 product categories, compared with roughly 180 in the Commission's original proposal and around 200 in the Council's position. The expanded Parliament list reaches into products including heat pumps, solar equipment, washing machines and other metal-intensive finished goods.

So Europe has arrived at an interesting point in climate policy. It wants consumers and businesses to buy technologies that cut fossil-fuel use. At the same time, it increasingly wants the carbon emitted while manufacturing those technologies to carry a price at the EU border.

Those objectives are not necessarily contradictory.

The logic is that European manufacturers should not face a carbon price at home while competing against imported products whose producers face no equivalent cost.

But that creates a more important question:

Is putting a carbon price on imports enough to level the playing field for European manufacturers?

And if it isn't, there is another question that receives far less attention:

Where does the CBAM money actually go?

CBAM is moving from the steel mill into the product

CBAM entered its definitive regime on 1 January 2026.

Today it covers selected imports in six sectors:

• iron and steel
• aluminium
• cement
• fertilisers
• electricity
• hydrogen

Importers above the applicable threshold have to become authorised CBAM declarants, calculate the emissions embedded in their imports and surrender CBAM certificates corresponding to those emissions.

The certificate price follows the EU Emissions Trading System.

For the first quarter of 2026, the CBAM certificate price was €75.36 per tonne of CO₂. In the second quarter it was €75.28. Certificates covering 2026 imports will actually be purchased from February 2027.

Until now, however, CBAM has largely been thought of as something that happens relatively early in an industrial supply chain.

• Steel.
• Aluminium.
• Cement.

The latest proposal changes that logic. Instead of asking only:

How much carbon was emitted producing this tonne of steel?

CBAM increasingly starts asking:

How much carbon is embedded in the product made from that steel?

That is a much bigger change than adding several hundred customs codes to a regulation. It moves carbon accounting closer to the finished product.

The spring problem

There is a fairly simple reason for doing this. Imagine two companies selling into Europe. Company A exports a CBAM-covered steel input directly into the EU. Company B buys similar steel outside the EU, performs additional manufacturing on it, and exports a finished component instead.

If the raw material is inside CBAM but the downstream component is outside it, the second supply chain can potentially avoid some of the carbon cost simply because more manufacturing happened before the product crossed the border.

That creates what policymakers describe as downstream carbon leakage.

The Commission therefore proposed extending CBAM to around 180 additional downstream products with high steel or aluminium content. Parliament has gone considerably further. Its negotiating position covers 457 products and includes finished steel and aluminium goods such as fasteners, wire, springs and household articles.

Parliament has also tightened the proposed anti-circumvention rules.

One issue is the practice of making relatively small changes to a product before import so that it falls under a different customs classification. Parliament's position explicitly addresses slight processing and other arrangements designed to avoid CBAM obligations.

That means the border between “material” and “product” is starting to disappear. And that is why the heat pump matters.

This is not quite a tax on your heat pump

Calling CBAM a carbon tax is convenient. Technically, it is more precise to describe it as a carbon-pricing mechanism at the border. An importer does not pay a fixed percentage of the value of a heat pump. The liability is linked to the greenhouse-gas emissions embedded in the covered goods and to the carbon price EU producers face under the ETS.

There is another important detail. If the importer can demonstrate that a carbon price was already effectively paid in the country where the product was manufactured, that amount can be deducted from the CBAM obligation.

So two apparently identical imported products could, in principle, carry different carbon costs. One might contain steel made using a carbon-intensive blast furnace and electricity from a fossil-heavy grid. Another might use recycled steel, lower-carbon aluminium and much cleaner electricity.

The purpose of CBAM is precisely to make that difference economically visible, and that makes the proposed downstream extension more sophisticated than a simple tariff. But it also makes it far more data-intensive, and eventually, some of those costs may move through the supply chain.

The importer is legally responsible for the CBAM certificates. But whether the economic cost is ultimately absorbed by the foreign producer, the importer, the distributor, the installer or the final customer will depend on contracts, margins, competition and purchasing power.

There is no rule saying that a €100 CBAM cost produces a €100 increase in the retail price. There is equally no reason to assume that none of it will reach the customer.

That matters when the products concerned are technologies governments are simultaneously trying to encourage people to buy.

Follow the money

Now we get to the part of CBAM that deserves considerably more attention.

Suppose an importer buys CBAM certificates.

Where does that money go?

The answer is not simply “to climate projects.”, and there is not one single permanent CBAM pot. The architecture is still evolving.

Under the current system, revenues from the sale of CBAM certificates are collected by Member States. The Commission has then proposed taking 25% of the revenues associated with 2026 and 2027 emissions and directing them into a new Temporary Decarbonisation Fund.

The Commission estimates that this 25% share would provide around €632 million:

• approximately €308 million from revenues relating to 2026 emissions
• approximately €324 million from revenues relating to 2027 emissions

And who would receive that money?

Not consumers buying heat pumps.

The proposed fund is primarily designed to support European industrial producers facing remaining carbon-leakage risks as free EU ETS allowances are phased out.

There are really two different problems.

If an EU steel or aluminium producer sells within Europe, CBAM helps level the playing field by requiring competing imports to bear a carbon cost intended to reflect the one faced by European production.

But CBAM stops at the EU border.

If that same European producer exports into a market without a comparable carbon price, its production may still carry an EU ETS cost while competing against producers that do not face one.

The Temporary Decarbonisation Fund tackles that problem differently. It does not reimburse exporters for the carbon cost on each tonne they sell abroad. Instead, it provides financial support for decarbonisation investments by European industry.

That can improve export competitiveness indirectly.

If a European steelmaker uses the support to cut the emissions from producing a tonne of steel, it needs fewer ETS allowances to make that tonne. Its carbon-cost exposure falls — whether the steel is ultimately sold inside Europe or exported abroad.

So CBAM and the Fund perform different jobs:

• CBAM raises the carbon cost faced by competing imports.
• The Fund helps European producers reduce the carbon cost embedded in their own production.

The open question is whether that combination is enough.

Then comes the EU budget

For the EU's proposed 2028–2034 budget, the Commission has put forward another major change. It wants 75% of CBAM revenues to become an EU “own resource” — effectively revenue flowing into the EU budget. The Commission estimates that this could generate around €1.4 billion per year on average over the 2028–2034 period.

That money would not sit in a ring-fenced account marked “heat pumps” or even necessarily “industrial decarbonisation.” Own resources finance the EU budget as a whole.

The Commission says its proposed new revenue sources would help fund future EU priorities while also limiting national contributions and helping finance repayment of borrowing undertaken under NextGenerationEU.

But this is important:

the 75% arrangement is a proposal, not settled law.

Changes to the EU own-resources system require agreement by Member States acting unanimously and, where applicable, ratification by national parliaments.

So the future CBAM money flow could look something like this:

Importer

↓

CBAM certificates

↓

Member State

↓

Temporary industrial decarbonisation support

and/or EU budget and potentially international climate finance depending on which proposals survive the legislative and budget negotiations.

That is a rather more complicated answer than “it's a carbon tax.”

Should some of it come back to the clean technology buyer?

That leads to a policy question the EU will increasingly have to confront. Imagine an imported heat pump becomes more expensive because its steel, aluminium or other covered inputs were produced using carbon-intensive processes.

From a carbon-accounting perspective, that is exactly the signal CBAM is supposed to create.

• The manufacturer can reduce the cost by reducing embedded emissions.
• The importer can favour lower-carbon suppliers.
• Procurement starts rewarding cleaner materials.
• The carbon footprint begins influencing the price of the physical product.

But from an electrification perspective, the same product is being promoted as a way to reduce fossil-fuel consumption in European buildings.

So there are two carbon effects operating at once.

The carbon emitted making the heat pump.

And:

The carbon avoided by using the heat pump.

They occur at different points in the product's life cycle, and a serious climate policy has to understand both.

That does not necessarily mean CBAM revenue should be used to subsidise heat pumps. There are competing uses for public money, and the CBAM legislation is primarily designed around carbon leakage rather than household energy policy. But it makes “where does the money go?” a legitimate question.

If carbon pricing increases the cost of technologies needed for electrification, policymakers will increasingly need to understand the relationship between:

carbon pricing, industrial decarbonisation and clean-technology adoption.

Those policies can reinforce each other, but they can also collide if they are designed in isolation.

We are already seeing trade flows move

It is tempting to look for evidence that CBAM is already cutting imports. There are some, but it requires care.

CRU reports that EU imports of stainless cold-rolled coil were down 50% year-on-year during the first four months of 2026. That is a dramatic number. It is not, however, a clean CBAM experiment.

Europe has simultaneously tightened its steel safeguards.

From July 2026, cold-rolled coil import quotas are being cut by around 53%, while the broader steel regime also includes much stricter quota and tariff measures. CRU explicitly says that both CBAM and the tightened safeguards are reshaping trade flows.

So saying “CBAM cut stainless imports by 50%” would be too simple.

What we can say is that carbon pricing is arriving at the border at the same time as Europe is materially changing the economics of industrial imports, and the next step takes those economics much further downstream.

457 products means 457 data problems

The most important consequence of Parliament's vote may ultimately have very little to do with tax departments. It is about information. For years, many companies have treated customs, carbon accounting, procurement and sustainability reporting as largely separate disciplines, now CBAM is forcing them together.

If Parliament's broader approach survives negotiations, an importer may increasingly need to know:

What exactly is this product?

- Its CN code.

What is it made from?

- Steel, aluminium and other relevant inputs.

Where were those materials produced?

- Not simply where the finished product was shipped from.

How were they produced?

- Production route, installation and electricity mix matter.

How much carbon was emitted, and can those emissions be verified?

Was a carbon price already paid abroad, and is there evidence sufficient to claim the deduction?

That is no longer ordinary sustainability reporting. It is product-level carbon data becoming financially consequential at the border. And once a tonne of carbon has an identifiable euro value attached to a physical product, emissions data starts behaving much more like financial data:

• Bad data can mean paying too much.
• Missing data can mean relying on defaults.
• Incorrect classification can become a customs and compliance problem.
• Supplier information becomes part of pricing.
• Procurement decisions affect future carbon liabilities.

And the carbon footprint moves from a sustainability report into the economics of the transaction itself.

What happens next

Parliament's 15 September vote does not mean that 457 additional product categories are now subject to CBAM. It establishes Parliament's negotiating position. The Commission proposed around 180 downstream products. The Council's position is closer to 200 and the Parliament wants 457. The institutions now have to negotiate the final scope and rules.

The downstream extension is intended to apply from 1 January 2028, subject to the final legislation. The exact product list will therefore matter enormously, although companies should probably pay attention to the direction of travel as much as the final number.

• CBAM is moving downstream.
• Carbon data is moving toward the product.
• Anti-circumvention rules are becoming more sophisticated.

And Europe increasingly wants the carbon embedded in imported manufactured goods to have an economic value.

That changes the question businesses need to ask.

Not simply:

Are we importing steel or aluminium?

But:

How much CBAM-covered carbon is embedded in the products we buy?

Because CBAM started at the blast furnace.

By 2028, it may be sitting in your utility room.

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