EU CBAM Direct and Indirect Emissions Calculation Formulas and Certificate Requirement Logic for Covered Sectors
ENFORCEMENT TIMELINE
Transitional phase began October 1, 2023 (definitive period from January 1, 2026; CBAM certificate sales begin February 1, 2027)
Overview
This card focuses on the calculation formulas for 'direct emissions' and 'indirect emissions' (such as electricity consumption) for the six sectors covered by the EU Carbon Border Adjustment Mechanism (CBAM: Regulation (EU) 2023/956) — steel, aluminum, cement, fertilizers, hydrogen, and electricity — together with the logic for determining the number of CBAM certificates an importer must purchase.
Under the CBAM Regulation, operators importing covered goods into the EU are required to calculate the specific embedded emissions (tCO2e per tonne of product) generated in the manufacturing process, for both simple goods and complex goods. In the full application phase, from the calculated total embedded emissions, operators subtract any carbon price already paid in the country of production (such as a carbon tax or emissions trading price) and the equivalent portion of free allocation under the EU ETS for the relevant product; the resulting net figure determines the number of CBAM certificates that must be purchased and surrendered, priced in line with EU ETS allowance auction prices (for 2026, the average of the quarter of importation; from 2027, the weekly average).
Enforcement Timeline
October 1, 2023: The CBAM transition period begins, with only emissions data reporting required.
December 31, 2025: The transition period ends, with quarterly reporting completed and primary data collection systems finalized.
January 1, 2026: Full application begins; emissions embedded in goods imported from 2026 onward must be covered by surrendering certificates.
February 1, 2027: Sale of CBAM certificates begins.
September 30, 2027: Deadline for the first annual CBAM Declaration and surrender of certificates for 2026.
2026–2034: The number of CBAM certificates required rises annually as EU ETS free allocation is phased down.
Business Impact
Operators exporting or importing covered sector products to the EU must prepare rigorous calculation worksheets that distinguish direct emissions (fuel combustion and process emissions) from precursor emissions embedded in raw materials for complex goods. The calculated specific embedded emissions must be audited by an accredited third-party verifier and reflected as verified emissions in the annual CBAM declaration, due by September 30 each year (the first, for 2026, by September 30, 2027).
Where a carbon price has been explicitly paid in the country of production — for example, under a carbon tax or domestic emissions trading system such as Japan's GX-ETS or China's national ETS — presenting proof of payment allows the corresponding number of CBAM certificates to be deducted. Companies need to both reduce the carbon intensity (tCO2 per tonne of product) of their sourcing and manufacturing processes and establish sophisticated carbon accounting practices to properly credit carbon taxation paid in the country of origin.