CBAM Electricity Verified Values: The 550 g CO₂/kWh Threshold That Decides Your Surrender Cost (and the §5(c) Loophole for Mixed-Source PPAs)

Short version. Annex IV §5 of Regulation (EU) 2023/956(updated 16 May 2023) sets five cumulative conditions before a CBAM declarant can apply a supplier's actual emissions to imported electricity instead of the EU default. Condition (c) — the 550 g CO₂/kWh fossil-fuel-origin threshold— is the only one a calculator can numerically check from the value the user types. We do; most don't. This post explains the threshold, the math, the penalty exposure, and the fossil-fuel-origin loophole that lets a renewable-only PPA carve-out from a mixed-source plant still qualify.

The exact regulation text — and the unit conversion

Annex IV §5(c) of Reg (EU) 2023/956, verbatim:

“the installation producing electricity does not emit more than 550 grammes of CO₂ of fossil fuel origin per kilowatt-hour of electricity”

Annex III of Implementing Reg (EU) 2025/2621(updated 31 Dec 2025) publishes the EU's default electricity emission factors in tCO₂eq/MWh, not g/kWh. The conversion you must do every time you compare a verified number to the §5(c) threshold:

• 1 MWh = 1,000 kWh
• 550 g CO₂ × 1,000 = 550,000 g = 550 kg = 0.550 tCO₂
• So the §5(c) ceiling, in Annex III units, is 0.550 tCO₂eq/MWh

Any verified emission factor above 0.550 fails §5(c). It does not matter how clean the rest of the conditions are — §5 requires cumulative compliance, so one breach disqualifies the entire verified-actuals path.

What §5(c) measures — and what your fallback looks like

§5(c) is an installation-leveltest, not a country-grid test. The regulation asks what the specific producing installation emits per kWh — not what the country's grid averages out to. So a clean PPA from a single low-emission installation can pass §5(c) even in a country whose grid average is high; conversely, a fossil-heavy installation in a clean-grid country still fails.

What matters cost-wise is the fallback when §5(c) (or any other §5 condition) is not met. The fallback is the country-specific Annex III default from Reg (EU) 2025/2621, or — when the country is not listed in Annex III — the §4.2.2 alternative default. Verbatim values for the 18 published rows (per pdfjs coordinate-extraction from the regulation PDF):

• Albania — 0 tCO₂eq/MWh (hydro-dominated)
• Belarus — 0.383
• Bosnia and Herzegovina — 1.148 (highest)
• Egypt — 0.442
• Georgia — 0.440
• Israel — 0.480
• Kosovo — 0.984
• Moldova, Republic of — 0.530
• Montenegro — 0.979
• Morocco — 0.907
• North Macedonia — 0.887
• Russian Federation — 0.585
• Serbia — 1.041
• Tunisia — 0.436
• Türkiye — 0.718
• Ukraine — 0.907
• United Kingdom — 0.430
• European Union — 0.612 (used as the §4.2.2 alternative default for unlisted countries — Canada, US, China, India, etc.)

A supplier in Bosnia handing you 1.148 as a “verified” number cannot use the §5 carve-out — it's above the 0.550 installation-level ceiling. The Annex III country default of 1.148 applies anyway, so verifying isn't actually saving anything in that case. Where verifying IS valuable: a clean installation in a country whose grid average is high — e.g., a wind farm in Bosnia (installation emits ~0) versus the 1.148 country grid average. That spread of 1.148 − 0 = 1.148 tCO₂e/MWh saved on every MWh, multiplied by your contract volume and the certificate price, is the prize §5 is designed to unlock.

What it costs you to get this wrong

The CBAM penalty regime is borrowed from the EU ETS by reference. Article 26(1) of Reg (EU) 2023/956 attaches the excess-emissions penalty to every CBAM certificate not surrendered, “identical to the excess emissions penalty set out in Article 16(3) of Directive 2003/87/EC and increased pursuant to Article 16(4) of that Directive, applicable in the year of importation of the goods”. That cross-reference reads as follows:

• Article 16(3) of Directive 2003/87/EC(updated 01 Mar 2024) sets the base figure at EUR 100 per tCO₂e for which an allowance has not been surrendered.
• Article 16(4) requires that figure to be increased annually by the European Index of Consumer Prices, with 2013 as the base year. The actual indexed value applicable in your year of importation is what Article 26(1) imports — confirm the current figure with your NCA before modelling exposure.
• Article 26(3) clarifies that paying the penalty does NOT release the declarant from the obligation to surrender the outstanding CBAM certificates. Both apply.

(Article 26(2) is a different scenario — it covers a person other than an authorised CBAM declarant who introduces goods into the customs territory without complying with the regulation. That penalty is “from three to five times the penalty referred to in paragraph 1”, sized on duration, gravity, scope, intentional nature, repetition and cooperation with the competent authority. Authorised declarants who misstate emissions stay on the §1 track.)

Worked example for an authorised declarant who applies a renewable-flavoured 0.20 verified value on 1,000 MWh of electricity from an unlisted country (default falls to the 0.612 §4.2.2 alternative) when in fact §5(c) was breached and the verified path is unavailable:

• Embedded emissions correctly declared (country default applies): 1,000 × 0.612 = 612 tCO₂e
• Embedded emissions actually declared (the unauthorised verified value): 1,000 × 0.20 = 200 tCO₂e
• Underdeclared: 612 − 200 = 412 tCO₂e
• Unpaid CBAM certificate cost at the Q1 2026 published price of €75.36/tCO₂e: 412 × €75.36 = €31,048.32 (still owed per Article 26(3))
• Article 26(1) penalty per certificate not surrendered, at the indexed Article 16(3) rate: 412 × €100 (base figure; the indexed value applicable in your import year is higher) = €41,200 minimum
• Minimum cash exposure on a 1,000 MWh contract: €72,248.32, and the indexed penalty figure pushes the actual total higher. Scale linearly to your contract volume.

The fossil-fuel-origin loophole (the part most consultants miss)

§5(c) says “550 grammes of CO₂ of fossil fuel originper kilowatt-hour” — not 550 grammes of CO₂. That qualifier is doing legal work.

Consider a third-country installation that is structurally mixed: a fossil-fuelled unit with co-located renewable generation (solar PV, wind, or both) feeding the same grid bus. The plant's blended emissions per kWh — averaging fossil and renewable output — would put a naïve §5(c) check firmly above 0.550 tCO₂eq/MWh. But:

• If your PPA explicitly carves out the 200 MW solar capacity (with a documented allocation methodology), and
• The firm-capacity nomination per §5(d) is for that carved capacity, and
• The accredited verifier attests specifically to the fossil-fuel-origin emissions of the carved capacity — which for solar is essentially zero —

...then the carved capacity passes §5(c) at ~0 g/kWh, even though the host plant fails the test by a country mile. The regulation is asking about the emissions of the unit of electricity you imported, not the emissions of the property on which it was generated.

Three things make this work:

1. The PPA contract must specify the carve-out is from a particular generation source (e.g., “turbines 1–12 of the Acme hybrid plant, solar array section A”), not generic plant output.
2. The §5(d) firm-capacity nomination must reference the carved capacity through the relevant transmission system operators, not the host plant total.
3. The verifier statement must attest specifically to the fossil-fuel-origin emissions of the carved capacity. A bare “the renewable PPA emits 0 g/kWh because solar” statement is not enough — the verifier must demonstrate that no fossil-component allocation flows to the carved capacity (e.g., that the lignite unit's output isn't backing the solar nominations during low-irradiation hours).

The cost difference between a qualifying carve-out and a failed §5(c) test is the entire spread between installation-actual emissions and the country default. For an importer pulling from a hybrid plant in Türkiye, that's the spread between the carved capacity's actual factor (often ~0 for a renewable carve-out) and the published Annex III Türkiye row of 0.718 tCO₂eq/MWh. Multiplied by contract MWh and the certificate price, the number gets large quickly. A PPA contract written without the §5(c) carve-out angle in mind locks the importer onto the country default for the duration of the deal — which is why the verifier scope and capacity-separation paragraphs are worth negotiating before signature, not after.

How our calculator handles this

The point is not that the math is hard. 0.550 is a single number. The point is that most CBAM tools treat any verified input as authoritative, hide the regulatory sub-clauses behind generic compliance copy, and never tell the importer that their supplier's number disqualifies them from the very path they are trying to use. That gap is where Article 26 penalty exposure builds up silently — sometimes for an entire calendar year before the NCA review surfaces it.

The five §5 conditions, in plain English

For completeness — every condition must be met. Failure of any one disqualifies all:

1. (a) PPA in force. A power purchase agreement between the authorised CBAM declarant (you) and a producer of electricity in a third country. A wholesale spot-market purchase does not qualify.
2. (b) Direct connection or no congestion. The installation is either directly connected to the EU transmission system, or you can demonstrate that at the time of export there was no physical network congestion at any point between the installation and the EU transmission system.
3. (c) ≤550 g CO₂/kWh fossil-fuel-origin. The threshold this entire post is about. Read literally — fossil-fuel-origin only.
4. (d) Firm capacity nomination. The amount of electricity claimed has been firmly nominated to the allocated interconnection capacity by ALL responsible transmission system operators in the country of origin, country of destination, and (if relevant) every country of transit. The nomination period must not be longer than one hour.
5. (e) Accredited-verifier attestation. Conditions (a)–(d) are certified by an accredited verifier who receives at least monthly interim reports demonstrating how those criteria are fulfilled.

Critically, conditions (a), (b), (d), and (e) are paperwork checks the importer must complete externally — the calculator cannot enforce them numerically. Condition (c) is the only one that is verifiable from the value the importer types. So the §5(c) check is not a substitute for a complete §5 compliance process; it is the cheapest way to catch the most common failure mode at data-entry time.

What to ask your supplier (and how to ask)

The five §5 deliverables map 1-to-1 to the items our electricity-aware supplier-data-request letter asks for:

1. Verified emission factor (tCO₂e/MWh) of the installation supplying the electricity covered by the PPA, certified by an accredited verifier.
2. Confirmation that the installation does not exceed 550 grammes of CO₂ of fossil-fuel origin per kWh — Annex IV §5(c).
3. Generation type and primary fuel of the installation (gas / coal / hydro / nuclear / wind / solar / biomass / mixed).
4. PPA reference and confirmation of firm capacity nomination across all relevant TSOs — §5(a) + §5(d).
5. Period of validity (verifier-issued, at least monthly per §5(e)).

You can generate the letter as a branded PDF in 30 seconds and forward it from your inbox. The letter cites the regulation paragraph numbers verbatim so the supplier sees this is a legal entitlement, not a commercial nice-to-have. For a renewable-only carve-out from a mixed-source plant, add a custom paragraph requesting the verifier specifically attest to the fossil-fuel-origin emissions of the carved capacity — the template gives you a place to do this.

Operational checklist for the broker

• Whenever a supplier hands you a verified emission factor for electricity, convert it to tCO₂eq/MWh and check against 0.550 immediately.
• If > 0.550, do not apply it. Either go back to the supplier for a §5(c)-compliant carve-out attestation, or apply the country default and price your customer accordingly.
• If the supplier insists their value is correct because “our overall plant emits less than the country grid”, that is the wrong question — §5(c) is about the installation, not the country.
• If the verifier statement does not explicitly say “fossil-fuel origin”, treat it as ambiguous and ask for a re-issue. Article 26 penalties are based on what the regulation requires, not what the supplier wishes had been written.
• Keep the verifier statement on file until the end of the fourth year after the year in which the CBAM declaration was (or should have been) submitted. Article 7(6) of Reg (EU) 2023/956 sets that retention period for the records used to calculate embedded emissions, including the verifier's report. NCA review can land at any point inside that window.

Frequently asked questions