CBAM reporting obligations require EU importers of carbon-intense goods to determine the embedded emissions in their imported goods. Quarterly reports are already due now. Default values published by the European Commission help to ease the reporting burden, but can only be applied within certain limits after June 30, 2024.
(this blog is regularly updated – last update on 10/10/2024)
Emissions in CBAM reporting
They have been long awaited for: the default values for the transitional period of the EU Carbon Border Adjustment Mechanism. These were published by the European Commission (EC) at the end of 2023 – just in time for the submission of the first CBAM quarterly reports due by the end of January via the CBAM transitional registry.
CBAM reporting obligations require EU importers of CBAM goods as reporting declarants to record comprehensive emissions data as these will form the base for calculating the CO2-based levies on imported CBAM goods from 2026 onwards.
These levies will be imposed on the embedded emissions of imported CBAM goods:
- Direct emissions released during the production of goods
- Indirect emissions from the production of electricity that is consumed during the production process of these goods
EU Importers face a challenge to determine actual emissions, as this will require data from across the supply chain of the goods. When actual data is not available, proof of efforts undertaken is to be provided as clarified in communication by the EU Commission and national authorities.
Sets of default values
In the CBAM reporting there are three sets of default values: (i) for direct emissions of non-electricity goods, (ii) for indirect emissions of non-electricity goods, and (iii) for electricity.
Direct emissions of non-electricity goods
Standard approach: Actual data from the installations where these goods have been manufactured is to be used. Determined emissions based on CBAM-methods can be entered as “specific embedded emissions” (tCO2e / t product), which are then multiplied with the amount of the imported good.
Alternatives: When no actual data is available, other methods including default values can be selected within certain limits (see below).
Default values for the emissions intensity of non-electricity CBAM goods are published by the EU Commission. They represent global averages based on emissions and production data from the EU’s main trading partners.
Validity: These default values will be regularly revised based on data collected in the reporting as well as feedback from both the EU industry and from non-EU producers of CBAM goods. For the definitive period from 2026 country-specific values will be set built on average emissions intensity in each country plus a mark-up.
Indirect emissions of non-electricity goods
Standard approach: Default values for the emission factor for electricity (tCO2e / kWh) are used. This factor is to be multiplied with the electricity consumed during the production of the imported goods.
Default values for these emission factors represent the average emissions per unit of electricity in the country of origin electricity grid. They are calculated as 5-year averages based on data from the International Energy Agency (IEA). These emission factors are made available through the CBAM registry.
Alternatives: Actual emission factors for electricity may be used if there is a direct technical link between the electricity-generating source and the installation producing the CBAM good or in case of a power purchase agreement through which electricity is provided to the installation.
Validity: These IEA-based default values are valid until the end of the transitional period. From 2026, a new set of values will be defined as the average of the emission factor of the EU’s or the country of origin electricity grid or the CO2 emission factor of price-setting sources in the country of origin.
Emissions of imported electricity
Standard approach: Default values for the CO2 emission factor (tCO2e / kWh) are applied. This value is to be multiplied by the amount of electricity imported into the EU.
Default values for CO2 emission factors are the weighted average of the CO2 intensity of electricity produced from fossil fuels within a country of origin based on IEA data. These data are made available through the CBAM registry.
Alternatives: Other CO2 emission factors from available and reliable data for the location from where electricity is imported may be used. To use such data, sufficient evidence based on official and public information is needed to show that the actual CO2 emission factors are lower than the IEA values.
Validity: These IEA-based default apply until the end of the transitional period. New default values to be used from 2026 will be set based on best available data for the CO2 emission factors in the third country, a group of third countries or region within a third country.
Using default values
While all the 3-types of default values are to be used in CBAM reporting, only the EU default values for direct emissions of non-electricity goods are to be self-entered by the reporting declarants. So, it is important to understand how these can be used.
What can default values be used for?
Default values are provided for all non-electricity goods falling under CBAM as defined by their commodity codes as per Combined Nomenclature (CN). In the CBAM reports imports need to be recorded with their 8-digit CN codes.
Accordingly, also those default values have to be used that match the 8-digit CN code of the goods imported. The EU table provides default values at the 4, 6 or 8-digit CN code level. Those values given at the 4-digit or 6-digit level apply to all 8-digit codes falling within this group.
For now, these values are not to be differentiated by country so that the value is the same regardless of the country of origin of EU imports.
When default values can be used?
If no actual emissions data can be reported, default values can be used within the following limits:
- For all emissions of CBAM goods reported in the first three quarterly reports, i.e. for Q4 of 2023 as well as Q1 and Q2 of 2024
- For up to 20% of emissions of complex CBAM goods which involve several precursors falling under the CBAM regulation (e.g. iron & steel products)
Beyond these limits actual emissions data from the installations where the imported goods are manufactured are needed. This will require importers to work with their suppliers to ensure that monitoring methods are implemented that meet the CBAM requirements.
Yet the CBAM implementing regulation adds in the technical Annex that default values can still be used if (i) CBAM-aligned methods are not available; (ii) not technically feasible, or (iii) would incur unreasonable costs. As recently clarified by the EU Commission, in such cases a justification is to be added to the report.
Which elements do default values cover?
The published EU default values represent a global average, weighted by production volume. They are based on earlier studies by the EU’s Joint Research Centre (JRC).
A JRC study on emissions from energy-intensive industries that fall under CBAM covers:
- Direct emissions from process and heat emissions and indirect emissions from electricity used in the production processes
- Carbon dioxide (CO2), nitrous oxide (N2O) for some fertilizer goods and perfluorocarbons (PFC) for aluminum goods
- Emissions from ca. 15-20 countries representing the main EU trading partners in each CBAM sector.
A separate JRC study for hydrogen estimates the global average emissions intensity for hydrogen based on the most recent publicly available data on production routes currently used for hydrogen production with production-based weights.
Prepare emissions data now
While the first three quarterly reports can all be covered with default values, EU importers, however, need a solution to get actual emissions data after July 2024. As setting up an emissions monitoring can be a lengthy process, the dialogue with suppliers and manufacturers needs to be started now.
And as the rules, including new default values, for the definitive period are still to be set, EU importers also need to closely watch the further EU legislation process. Implementing acts detailing these rules are expected in 2025. From 2026, the emission values used can result in considerable differences of CBAM costs.
Sources and further information:
- DEHSt: Carbon Border Adjustment Mechanism
- European Commission: Carbon Border Adjustment Mechanism
- European Commission: Default Values for the Transitional Period
- EU: Implementing Regulation on Reporting Requirements
- EU: Regulation establishing a CO2 border adjustment system
- JRC: Emission Intensities in CBAM Industries
Photo by Anne Nygård on Unsplash
