Calculating embedded emissions

Principle of embedded emissions calculation

Embedded emissions represent the quantity of greenhouse gases emitted during the production of a CBAM good, expressed in tonnes of CO2 equivalent per tonne of product (tCO2eq/t).

Article 7 of Regulation 956/2023 defines the general framework for the calculation, while Annex IV and Implementing Regulation 2025/2547 set out the detailed methods.

The number of CBAM certificates to surrender depends directly on the result of this calculation:

Certificates = Quantity imported (t) x Embedded emissions (tCO2eq/t) x CBAM factor

The CBAM factor represents the proportion of the carbon cost not already covered by free EU-ETS allowances (2.5% in 2026, rising to 100% in 2034). See the phase-out table in chapter 1.

Types of emissions

CBAM distinguishes two types of emissions:

1. Direct emissions: emissions produced at the production site (fuel combustion, process emissions). Always covered for all sectors.
2. Indirect emissions: emissions related to the production of electricity consumed during manufacturing. Covered for:
   • Cement
   • Fertilisers
   • Hydrogen
   • Not covered (for the time being) for iron/steel and aluminium

The distinction matters significantly: for cement and fertilisers, indirect emissions can represent 10-30% of total embedded emissions. For aluminium, where electrolysis is the dominant process, indirect emissions can represent 60-80% of total emissions -- their future inclusion would dramatically increase CBAM costs for this sector.

The three calculation methods

Method 1: Actual emissions from the installation

This is the preferred and most precise method. The third-country producer provides the actual emissions data from their installation.

Data required:

• Fuel consumption by type (natural gas, coal, fuel oil, petroleum coke, biomass, etc.)
• Process emissions (e.g. calcination in cement, anode effect in aluminium)
• Total production of the installation over the reporting period
• Electricity consumed and electricity mix (if indirect emissions are covered)
• Heat consumption and source (if relevant)

Simplified calculation:

Direct emissions (tCO2/t) = (Sum of Fuels x Emission factors + Process emissions) / Total production

Regulation 2025/2547 defines the reference emission factors for each fuel type and the process emission calculation methods by sector. The factors are aligned with IPCC 2006 Guidelines and EU-ETS Monitoring and Reporting Regulation methodologies.

Advantages: Actual emissions are almost always lower than default values, resulting in fewer certificates to surrender and lower costs. For installations with specific decarbonisation measures (waste heat recovery, fuel switching, carbon capture), the savings can be substantial.

Method 2: Commission default values

If actual data is unavailable, the importer may use the default values published by the European Commission. These values are calculated from average data of the most emitting installations worldwide.

Warning: Default values are deliberately conservative (high). They correspond to the performance of the top 10% most emitting installations in the world for each sector and geographic zone. Using default values therefore results in a higher number of certificates (and higher cost) than using actual emissions.

Indicative default values:

Exact values are published and periodically updated by the Commission. The spread between default and best practice highlights the financial incentive to obtain actual data.

Cost impact illustration: For 1,000 tonnes of imported steel, the difference between default values (2.10 tCO2/t) and actual emissions from a modern blast furnace (1.50 tCO2/t) represents a saving of 600 certificates. At EUR 70/certificate and a 48.5% CBAM factor (2030), this equals approximately EUR 20,370 saved by using actual data.

Method 3: Country-specific default values

For certain third countries, the Commission may publish country-specific default values based on the energy mix and predominant technologies in that country. These values are generally more favourable than global default values.

Example: A country with a high share of natural gas in its energy mix (rather than coal) would have lower default values for sectors where fuel combustion is the primary emissions source.

Country-specific values are available for countries with transparent energy statistics and reliable industrial data. They represent a middle ground between conservative global defaults and actual installation data.

Supplier data collection

The operational challenge

Collecting emissions data from third-country suppliers is the major operational challenge of CBAM. Many producers do not yet have emissions measurement systems compliant with European requirements. Language barriers, different measurement standards, and commercial sensitivity of production data compound the difficulty.

Data to collect

For each production installation, the CBAM declarant must obtain:

1. Installation identification: name, address, country, identifier in the CBAM registry (if registered)
2. Production data: total quantity produced during the reporting period, broken down by product
3. Direct emissions: fuel consumption by type, process emissions, attributed to each product
4. Indirect emissions (if applicable): electricity consumption, source of electricity, emission factor
5. Precursor data: if the product uses CBAM precursors (e.g. clinker in cement, pig iron in steel), the embedded emissions of those precursors

Data communication

Regulation 2025/2547 provides a standardised communication format for the exchange of data between third-country producers and CBAM importers. The data must cover a complete calendar year.

Article 10 encourages third-country installation operators to voluntarily register in the CBAM registry (Regulation 2024/3210) to facilitate direct communication of emissions data. Registered installations can upload their data once and make it available to all importers purchasing from them.

What to do if the supplier refuses to provide data?

If the producer refuses to provide actual emissions data, the importer must use the Commission's default values. This is a penalising but compliant situation. Practical strategies:

• Contractual negotiation: include a CBAM data clause in purchase agreements, making emissions data provision a contractual obligation
• Economic incentive: demonstrate to the supplier that lower actual emissions improve their competitiveness -- importers will prefer suppliers with verifiable low emissions
• Diversification: consider alternative suppliers who can provide actual data
• Technical support: offer to assist the supplier in setting up an emissions measurement system, potentially sharing the cost
• Phased approach: start with default values and transition to actual data as the supplier develops monitoring capabilities

Special cases

Complex goods (precursors)

For products manufactured from multiple CBAM components (e.g. a steel profile containing aluminium alloy, or cement made with specific additives), embedded emissions must be calculated taking into account the emissions from precursors. Annex IV defines the attribution rules.

The general principle is:

1. Identify all CBAM precursors used in the production of the final product
2. Calculate or obtain the embedded emissions of each precursor
3. Attribute precursor emissions proportionally to the quantity used in the final product
4. Add the direct emissions of the final production step

This can create complex calculation chains, particularly for multi-stage steel products (ore > pig iron > crude steel > hot-rolled > cold-rolled > coated).

Inward processing regime

Article 34 provides that CBAM goods imported under the inward processing regime are subject to an emissions reporting obligation, even if the processed products are re-exported. If the processed products are subsequently released for free circulation in the EU, the embedded emissions of the original CBAM inputs must be declared and covered by certificates.

This provision prevents circumvention through processing operations designed to transform CBAM goods into non-CBAM products within the EU.

Multi-product installations

When an installation produces multiple products (e.g. a steel mill producing both flat and long products), emissions must be correctly attributed to each product line. Regulation 2025/2547 provides allocation methodologies based on physical causality (mass, energy content) or, where this is not possible, on economic allocation.