1.   The Commission, in consultation with relevant stakeholders, shall collect the information necessary with a view to extending the scope of this Regulation as indicated in and pursuant to paragraph 2, point (a), and to developing methods of calculating embedded emissions based on environmental footprint methods.

2.   Before the end of the transitional period referred to in Article 32, the Commission shall present a report to the European Parliament and to the Council on the application of this Regulation.

The report shall contain an assessment of:

(a)

the possibility to extend the scope to: (i) embedded indirect emissions in the goods listed in Annex II; (ii) embedded emissions in the transport of the goods listed in Annex I and transportation services; (iii) goods at risk of carbon leakage other than those listed in Annex I, and specifically organic chemicals and polymers; (iv) other input materials (precursors) for the goods listed in Annex I;

(b)

the criteria to be used to identify goods to be included in the list in Annex I to this Regulation based on the sectors at risk of carbon leakage identified pursuant to Article 10b of Directive 2003/87/EC; that assessment shall be accompanied by a timetable ending in 2030 for the gradual inclusion of the goods within the scope of this Regulation, taking into account in particular the level of risk of their respective carbon leakage;

(c)	the technical requirements for calculating embedded emissions for other goods to be included in the list in Annex I;

(d)	the progress made in international discussions regarding climate action;

(e)	the governance system, including the administrative costs;

(f)	the impact of this Regulation on goods listed in Annex I imported from developing countries with special interest to the least developed countries as identified by the United Nations (LDCs) and on the effects of the technical assistance given;

(g)	the methodology for the calculation of indirect emissions pursuant to Article 7(7) and point 4.3 of Annex IV.

3.   At least one year before the end of the transitional period, the Commission shall present a report to the European Parliament and to the Council that identifies products further down the value chain of the goods listed in Annex I that it recommends to be considered for inclusion within the scope of this Regulation. To that end, the Commission shall develop, in a timely manner, a methodology that should be based on relevance in terms of cumulated greenhouse gas emissions and risk of carbon leakage.

4.   The reports referred to in paragraphs 2 and 3 shall, where appropriate, be accompanied by a legislative proposal by the end of the transitional period, including a detailed impact assessment, in particular with a view to extending the scope of this Regulation on the basis of the conclusions drawn in those reports.

5.   Every two years from the end of the transitional period, as part of its annual report to the European Parliament and to the Council pursuant to Article 10(5) of Directive 2003/87/EC, the Commission shall assess the effectiveness of the CBAM in addressing the carbon leakage risk of goods produced in the Union for export to third countries which do not apply the EU ETS or a similar carbon pricing mechanism. The report shall in particular assess the development of Union exports in CBAM sectors and the developments as regards trade flows and the embedded emissions of those goods on the global market. Where the report concludes that there is a risk of carbon leakage of goods produced in the Union for export to such third countries which do not apply the EU ETS or a similar carbon pricing mechanism, the Commission shall, where appropriate, present a legislative proposal to address that risk in a manner that complies with World Trade Organization law and that takes into account the decarbonisation of installations in the Union.

6.   The Commission shall monitor the functioning of the CBAM with a view to evaluating the impacts and possible adjustments in its application.

Before 1 January 2028, as well as every two years thereafter, the Commission shall present a report to the European Parliament and to the Council on the application of this Regulation and functioning of the CBAM. The report shall contain at least the following:

(a)

an assessment of the impact of the CBAM on: (i) carbon leakage, including in relation to exports; (ii) the sectors covered; (iii) internal market, economic and territorial impact throughout the Union; (iv) inflation and the price of commodities; (v) the effect on industries using goods listed in Annex I; (vi) international trade, including resource shuffling; and (vii) LDCs;

(b)	an assessment of: (i) the governance system, including an assessment of the implementation and administration of the authorisation of CBAM declarants by Member States; (ii) the scope of this Regulation; (iii) practices of circumvention; (iv) the application of penalties in Member States;

(c)	results of investigations and penalties imposed;

(d)	aggregated information on the emission intensity for each country of origin for the different goods listed in Annex I.

7.   Where an unforeseeable, exceptional and unprovoked event has occurred that is outside the control of one or more third countries subject to the CBAM, and that event has destructive consequences on the economic and industrial infrastructure of such country or countries concerned, the Commission shall assess the situation and submit to the European Parliament and to the Council a report, accompanied, where appropriate, by a legislative proposal, to amend this Regulation by setting out the necessary provisional measures to address those exceptional circumstances.

8.   From the end of the transitional period referred to in Article 32 of this Regulation, as part of the annual reporting pursuant to Article 41 of Regulation (EU) 2021/947 of the European Parliament and of the Council (27), the Commission shall evaluate and report on how the financing under that Regulation has contributed to the decarbonisation of the manufacturing industry in LDCs.