Technical study on indirect emissions in the CBAM

The Carbon Border Adjustment Mechanism (CBAM) applies to imports of defined carbon-intensive goods, which are covered by the EU ETS 1 when produced in the EU. Upon importation, the importers have to declare the embedded emissions of their goods – both direct emissions from the production itself and indirect emissions related to the consumption of electricity and pay a comparable carbon price. The aim of the project is i) to assist the EU Commission in exploring to what extent the indirect emissions’ scope of the CBAM regulation is fit for purpose and coherent with the Green Deal and ii) to support the Commission in developing the methodology to monitor, report and verify indirect emissions of imported CBAM goods other than electricity in the definitive period.

For direct emissions reporting for CBAM goods other than electricity based on actual emissions is the norm, the reporting of indirect embedded emissions follows a different approach: it relies on default emission factors as a norm but allow for actual emission factors under certain circumstances (compare Recitals 51-52 of Regulation (EU) 2023/956). The project explores different options to define and calculate default values and provides recommendations to the implementing regulation for the definitive CBAM period.

The specific rules allowing for the use of actual values for indirect emissions need to be designed in a way to serve two objectives: i) to prevent carbon leakage and ii) to ensure the environmental integrity of the CBAM. Importers will choose to report actual emissions instead of default values only if the actual emissions are lower or zero. This means that the CBAM costs for indirect emissions will be lower or even zero in the definite period and thus constitute an economic advantage compared to other imported products receiving electricity from the grid and compared to EU producers. In this project we develop rules on the evidence to be provided and the verification when a declarant wishes to apply actual indirect embedded emissions in a way to reduce the risk of circumvention and thus carbon leakage as well to enhance the environmental effectiveness of the scheme.

Furthermore, this project supports the Commission to explore technical solutions for extending the CBAM scope to indirect embedded emissions of all CBAM goods for the definitive period. There is a need to both identify and assess technical solutions to extend the coverage of indirect emissions to all CBAM goods for the definitive period so that it is coherent with the ambition of the Green Deal and also complies with WTO rules.