The cost of your CBAM obligation is not determined by how much steel or cement you import. It is determined by how much CO2 was emitted to produce it. Two importers buying identical volumes from different suppliers may face very different CBAM costs depending on how carbon-intensive the production was. This is the mechanism that makes CBAM a genuine carbon price signal, not just a volume-based tariff.
What "embedded emissions" means
The CBAM Regulation defines embedded emissions as the greenhouse gases emitted during the production of goods, including the production of input materials used in their manufacture. For most goods, this includes:
- Direct emissions: CO2 (and for fertilisers, N2O) emitted directly from the production process, for example the CO2 released when limestone is converted to cement clinker, or from combustion in a steel furnace.
- Indirect emissions: CO2 equivalent from the electricity consumed during production. These are only counted for goods where electricity is a significant input, primarily aluminium and certain other metals.
For "simple goods" (goods produced in a single production step), only the direct emissions from that step are counted. For "complex goods" (goods requiring multiple production steps or assembled from sub-components themselves covered by CBAM), you must also account for the embedded emissions of the precursor materials.
The specific emissions value
The key metric is the specific embedded emissions per tonne of goods, expressed in tonnes of CO2 equivalent per tonne of product. This is what you report for each import in your annual CBAM declaration.
The calculation formula, simplified:
Specific embedded emissions = (direct emissions from production process + indirect emissions from electricity input) / tonnes of goods produced
This figure must be calculated at the installation level, meaning per production facility, not per company or per country. If your supplier has multiple production sites, each site may have a different specific emissions value.
The two methods: actual data vs default values
Using actual verified emissions data
If your non-EU supplier provides production-level emissions data that has been verified by an accredited verifier, you can use those figures in your CBAM declaration. This is beneficial if the production facility is genuinely cleaner than the EU average, which would reduce your certificate cost.
The data must meet the monitoring and reporting requirements set out in Annexes III and IV of Commission Implementing Regulation (EU) 2023/1773. In practice, this means the supplier must have a monitoring plan, systematic measurement records, and a third-party verification report. Many non-EU producers, particularly in countries with no domestic carbon pricing, have not yet set up these systems.
Using EU default values
Where actual verified data is not available, you use the default values published by the European Commission. These default values are set at the 90th percentile of the worst-performing EU installations for each product type. They are intentionally high. The purpose is to create a financial incentive for importers to collect and submit actual data rather than rely on defaults.
Commission Implementing Regulation (EU) 2023/1773, Annex VIII: default values per goods type are published and updated periodically by the European Commission. Using default values for the full reporting year typically results in a significantly higher certificate cost than using actual production data from a modern, gas-fired facility.
Embedded emissions for complex goods
For complex goods, the calculation adds a layer. Take hot-rolled steel coil as an example. If the coil was produced from iron ore reduced in a blast furnace (a highly carbon-intensive route), the embedded emissions are higher than coil produced from scrap in an electric arc furnace (much lower carbon intensity). Your declaration must capture this difference.
For complex goods, you aggregate: the direct emissions from the final production step, plus the specific embedded emissions of each precursor CBAM good used in production, multiplied by the mass of that precursor per tonne of finished product.
What this means practically for importers
Start by identifying your suppliers and asking them for their verified specific emissions data per production site. Many non-EU steel and aluminium producers in Turkey, India, China, and Brazil have begun preparing this documentation as CBAM reached its definitive phase. If your supplier cannot or will not provide it, you will default to the EU values and pay a higher certificate cost.
Switching from a high-emission to a low-emission supplier is one of the most effective ways to reduce your CBAM cost, though this analysis needs to account for the total commercial relationship, not just the CBAM line item.
For the annual declaration, consolidate your imports per supplier per installation site. Each site's specific emissions apply to the goods produced there. Do not average across sites or across countries.