CBAM cost calculation explained — direct vs indirect emissions, free allocation, and origin-country carbon credits

Short version. The CBAM cost formula has five terms, three of which are optional, and one of which only applies to some sectors. Most online explainers still use the transitional-era shape (just emissions × ETS spot) which under-bills the actual definitive-period liability by a wide margin — sometimes 30%. Here's the canonical walkthrough straight from Implementing Regulation (EU) 2025/2547 and the December 2025 implementing-acts package, with one full worked example end-to-end.

The five-term formula

Net certificate cost (€) =
(direct emissions intensity × tonnage)
+ (indirect emissions intensity × tonnage if sector has indirect-surrender)
− (free-allocation benchmark × tonnage)
× (CBAM certificate price €/tCO₂e for the period)
− (origin-country carbon price already paid on those tonnes, €)

Each term has a specific regulation behind it. Walking each one in order:

Term 1 — direct embedded emissions

The CO₂e released directly during production of the imported good — fuel combustion in the kiln, blast-furnace gas, etc. Per Implementing Regulation (EU) 2025/2621, every CN code × country of origin combination has a published default emissions intensity in tCO₂e per tonne of product.

Hierarchy:

1. Verified intensity — if the supplier has accredited emissions data per Delegated Reg (EU) 2025/2551, use that. Lower than defaults in most cases.
2. Country × CN-code default — if the EU's "DVs as adopted" Excel has a row for your specific country + CN, use that value with the year's statutory mark-up applied.
3. Country × sector default — fallback when the CN-code-specific row isn't published yet.
4. Worst-available-technology baseline — when the country has no published value (typically because the EU hasn't received methodology data from that country's authority yet).

The statutory mark-up: 2026 = ×1.0, 2027 = ×1.05, 2028+ = ×1.10. This mark-up exists specifically to incentivise importers to procure verified data over time.

Term 2 — indirect embedded emissions (sector-conditional)

Indirect emissions are CO₂ released by the electricity used to make the product — emissions from the producer's grid mix, scaled to the product's electricity consumption per unit.

During the definitive period, indirect emissions are only surrendered for four sectors per Implementing Reg (EU) 2025/2547:

• Cement
• Fertilisers
• Electricity (trivially — it IS the indirect input)
• Hydrogen

For iron/steel and aluminium, indirect emissions are reported in the annual declaration but not surrendered. They're effectively informational. The calculator on /cbam labels them clearly so you don't double-count them in cost estimates.

Term 3 — free-allocation deduction

EU producers in the same sector receive free emissions allowances under the EU-ETS. To level the playing field, importers deduct an equivalent benchmark from their CBAM liability — otherwise CBAM would over-tax imports relative to EU production.

Per Implementing Regulation (EU) 2025/2620, the Commission publishes a quarterly CBAM Benchmarks Excel with per-CN-code free-allocation benchmarks in tCO₂e per tonne of product. The deduction is:

free_allocation_t = min(emission_intensity, benchmark) × tonnage

In plain words: you can't deduct more than you actually emitted. If your shipment's emissions intensity is below the benchmark, you deduct your full emissions (resulting in zero net cost — the shipment effectively prepaid carbon). If your intensity is above the benchmark, you deduct only up to the benchmark.

The free-allocation benchmark is also subject to the same EU-ETS phase-out schedule that EU producers face — it ratchets down through 2034 as EU industry's free allowances diminish. By 2034 the deduction reaches zero and CBAM imports pay the full certificate price on every tonne of embedded emissions.

Term 4 — certificate price

Already covered in detail in our companion post: EU CBAM in 2026 — the complete guide. In one sentence: the price is a derived weighted average of EU-ETS auction clearing prices, published quarterly in 2026 and weekly from 2027 by the European Commission. Q1 2026 = €75.36/tCO₂e (published 7 April 2026).

Critical: the price applied is the price for the period in which you purchased the certificates, not the period in which you imported the goods. Importers buying early in 2027 to cover 2026 emissions get whatever the early-2027 weekly price is.

Term 5 — origin-country carbon-price deduction

Per Article 9 of Regulation (EU) 2023/956, importers can deduct carbon prices already paid in the country of origin on the same tonnes of embedded emissions. This avoids double-charging carbon when the producer's jurisdiction also has carbon pricing:

• UK ETS
• China national ETS
• Korea KETS
• California Cap-and-Trade (for some product categories)
• Carbon taxes in Norway, Switzerland, Singapore

The deduction is in euros directly, not tonnes — you provide the actual carbon-tax amount paid (with documentation) and it subtracts from the gross CBAM cost line by line.

Documentation requirements are strict. Self-reported "we pay carbon tax in Country X" without official proof is not accepted. Your NCA will reject the deduction at audit time. Standard accepted proofs:

• Tax-paid receipt from the origin country's customs/tax authority
• ETS settlement statement showing the producer surrendered allowances
• Certified translation if not in EU language
• Chain of custody linking the proof to the shipment (supplier statement)

Worked example — CN 7208 hot-rolled steel from Turkey, 100 tonnes

A real shipment we'll walk through end-to-end. Inputs:

• CN code: 7208 1000 (hot-rolled iron/non-alloy steel coils)
• Origin: Turkey (TUR)
• Tonnage: 100 tonnes
• Import year: 2026
• Verified emissions data from supplier: not available (using defaults)
• Origin carbon price paid: €0 (Turkey has no national ETS as of 2026)

Step 1 — direct emissions intensity

Per the EU's "DVs as adopted" Excel, Turkey × CN 7208 default direct intensity is 1.85 tCO₂e/t product (year 2026 with ×1.0 statutory factor; the 2027 statutory ×1.05 would push it to 1.94).

Direct emissions = 1.85 × 100 = 185 tCO₂e

Step 2 — indirect emissions (informational, not surrendered for steel)

Per Reg 2025/2547, iron/steel doesn't surrender indirect emissions during the definitive period. The default indirect intensity for Turkey × CN 7208 is roughly 0.80 tCO₂e/t (electricity for rolling mills). We report it but exclude from the surrender obligation.

Indirect emissions (informational) = 0.80 × 100 = 80 tCO₂e — not part of the cost.

Step 3 — free-allocation deduction

Per the EU's CBAM Benchmarks Excel, the free-allocation benchmark for CN 7208 is approximately 1.328 tCO₂e/t product (the EU-ETS hot-rolled-coils benchmark).

Free-allocation deduction = min(1.85, 1.328) × 100 = 132.8 tCO₂e

Step 4 — net emissions for surrender

Net surrender obligation = direct − free allocation = 185 − 132.8 = 52.2 tCO₂e

Step 5 — certificate price

Q1 2026 certificate price = €75.36/tCO₂e.

Step 6 — gross cost

Gross cost = 52.2 tCO₂e × €75.36/tCO₂e = €3 933.79

Step 7 — origin carbon-tax deduction

Turkey: €0. No deduction.

Step 8 — net certificate cost

Net cost = €3 933.79 − €0 = €3 933.79 for 100 tonnes of CN 7208 from Turkey, 2026 import year.

That's about €39.34 per tonne of steel, or roughly 5–7% of the typical €600–800/t commodity price. The cost rises materially in 2027+ as the statutory mark-up applies and the free-allocation benchmark phases down.

Variations the worked example doesn't cover

• Cement (CN 2523) from Egypt: indirect emissions ARE surrendered for cement, so you'd add Term 2. Egypt also has no national ETS, so Term 5 stays €0. Egypt's cement default intensity is around 0.85 tCO₂e/t direct + 0.05 indirect.
• Aluminium (CN 7601) from China: indirect NOT surrendered for aluminium. China's national ETS now covers aluminium smelting since 2024 — verifiable proof of paid carbon tax (likely ¥75–95/tCO₂e ≈ €9–12/tCO₂e in 2026 USD-EUR rates) is an Article 9 deduction.
• Steel (CN 7208) from UK: the UK has its own ETS, so the producer pays carbon prices that are deductible under Article 9. UK ETS prices have tracked EU-ETS at a slight discount (typically £55–70/tCO₂e ≈ €65–82). For some steel imports the net CBAM cost rounds to zero after the UK ETS deduction.

Common mistakes

• Using EU-ETS spot price instead of CBAM certificate price. The certificate price is a smoothed weighted average, deliberately different from spot. They diverge by 5–15% in volatile markets. The certificate price is the only number that matters for the calculation.
• Counting indirect emissions for steel/aluminium. Common in legacy explainers. Definitive-period rules say no.
• Ignoring the free-allocation deduction. Material mistake — for most sectors it's 30–50% of gross cost.
• Claiming origin carbon price without documentation. Article 9 is strict. Self-attestation is not accepted.
• Using last quarter's certificate price. The certificate price applied is the one in force when you purchase the certificate — not the one in force when you imported the goods.

Sources

• Regulation (EU) 2023/956 establishing CBAM, Article 9 (origin carbon-price deduction): eur-lex.europa.eu.
• Implementing Regulation (EU) 2025/2547 (calculation methodology): EUR-Lex.
• Implementing Regulation (EU) 2025/2548 (certificate price): EUR-Lex.
• Implementing Regulation (EU) 2025/2620 (free-allocation deduction): EUR-Lex.
• Implementing Regulation (EU) 2025/2621 (default emissions values): EUR-Lex.
• Delegated Regulation (EU) 2025/2551 (verification principles): EUR-Lex.
• EU Commission CBAM main page: taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en.

FAQ

Related

• EU CBAM in 2026 — the complete guide for customs brokers and freight forwarders
• How to become a CBAM Indirect Customs Representative for your import clients