Table of Contents
Where CBAM draws the line
In brief
The EU CBAM documents settle five sector-specific arguments about what belongs inside your emissions figure, and, for electricity, whether you are allowed to use your own numbers at all. Drawn from Regulation (EU) 2023/956 and Implementing Regulations (EU) 2025/2547 and (EU) 2025/2621, current to 27 May 2026.
The CBAM methodology tells you how to calculate. The sector rules tell you what to calculate. They occupy only a few pages of the EU CBAM documents, and they are where a surprising share of calculation errors begin: because each one quietly moves the edge of your number.
Five sectors, unevenly weighted: electricity attracts more clarification than the other four combined, which tells you where the difficulty lies. What follows is a plain-English walk through each, with the underlying regulations noted throughout.
The sector rules at a glance: what each one turns on
Turns on | Sector | In one line |
|---|---|---|
Complex goods | Cement | Clinker is a precursor, and a CBAM good. |
Direct emissions | Fertilisers | Carbon is booked where it is generated. |
System boundaries | Iron and steel | Lime and coke fall outside the boundary. |
Functional units | Alloys | The CN code is the unit, not the grade. |
Conditionality | Electricity | Actual emissions only if four gates are cleared. |
Every diagram below uses the same grammar: a solid boundary is what your embedded emissions figure must contain, a dashed box is what it must leave out.
Cement
The rule. Cement is a complex good, because clinker is a precursor to cement and clinker is itself a CBAM good.
That single sentence has a practical consequence: you cannot produce a cement figure without first having a clinker figure. The emissions of the precursor travel into the final good.
If the installation cannot give you actual verified emissions for the clinker it used, the precursor falls back to default values, and the cement number inherits that fallback. Two further points matter here: cement's functional unit is defined by clinker content rather than tonnes of cement, under Article 4 of Implementing Regulation (EU) 2025/2547, and cement is one of the categories that must declare both direct and indirect emissions.
How the precursor carries through
Element | Role | Detail |
|---|---|---|
Clinker | Precursor, CBAM good | Its embedded emissions are carried forward. |
Cement | Complex good | Figure = own process emissions + clinker emissions. |
Clinker sits inside the boundary. Its emissions are not an input you may disregard, they are part of the cement figure you declare.
Fertilisers
Rule one. What makes an emission "direct" is not the heat of the reaction, it is whether CO2 is generated and emitted. Converting natural gas to hydrogen counts as direct emissions.
Rule two. CO2 chemically bound in urea is not a negative emission. CO2 generated in ammonia production and transferred to urea production is counted at ammonia production.
The question the Commission was asked was about exothermic reactions. The answer sidesteps the heat entirely: if a reaction oxidises organic chemicals and releases CO2, that is a direct emission, full stop.
The urea point is the one that changes numbers. An integrated ammonia-urea site consumes CO2 downstream, and it is tempting to net that off. You cannot. CBAM follows the EU ETS here: the carbon is booked once, where it is generated, and the fact that it later ends up locked inside a urea molecule earns no discount. Fertilisers also declare both direct and indirect emissions.
Where the carbon is booked
Stage | Status | Detail |
|---|---|---|
Natural gas to hydrogen | Counted | Counted as direct emissions. |
Ammonia production | Booked here | CO2 generated here is counted here, even when transferred onward. |
Urea production | No deduction | CO2 chemically bound in urea is not a negative emission. |
The CO2 transferred from ammonia to urea production does not move with the molecule. It stays booked against ammonia.
Iron and steel
The rule. Lime kilns and coke oven plants sit outside the system boundary for iron and steel, because lime and coke are not CBAM goods, and for the same reason they are not precursors either.
System boundaries are set per production process, by aggregated goods category, in Annex I to Implementing Regulation (EU) 2025/2547. The reasoning behind the lime and coke exclusion is worth internalising because it generalises across the whole mechanism: CBAM's precursor logic is closed. If an input is not itself listed as a CBAM good, its emissions do not ride along into your figure.
Iron ore pellets, by contrast, are firmly in. They fall under CN 2601 12 00, "agglomerated iron ores and concentrates, other than roasted iron pyrites". Note the asymmetry: iron and steel is otherwise a direct-emissions-only sector, but agglomerated iron ore must declare indirect emissions too, alongside cement and fertilisers.
What the boundary holds, and what it refuses
Position | Item | Detail |
|---|---|---|
In scope, CN 2601 12 00 | Agglomerated iron ore | Iron ore pellets. Direct and indirect emissions. |
Aggregated goods category | Iron and steel production | System boundary per Annex I, IR (EU) 2025/2547. |
Outside the boundary (not a CBAM good) | Lime kiln to lime | Excluded from the boundary; not a precursor. |
Outside the boundary (not a CBAM good) | Coke oven to coke | Excluded from the boundary; not a precursor. |
Emissions from a lime kiln or coke oven on the same site do not enter the steel figure, and lime and coke cannot be treated as precursors carrying embedded emissions.
Aluminium and steel: alloy grades
The rule. One CN code, one functional unit, one embedded emissions figure, whatever the alloying content or the share of input scrap.
Under Article 4 of Implementing Regulation (EU) 2025/2547, the functional unit is by default "the quantities of goods produced in tonnes classified under the same CN code". Within a single CN code, alloying elements and scrap share can vary considerably. The reporting does not follow that variation.
Two practical consequences. You cannot carve out a lower-carbon grade and report it separately to improve your figure. And a customer cannot ask you for a grade-specific CBAM number, because the mechanism does not produce one, the averaging happens at CN-code level. The same anti-splitting logic blocks separating EU-bound from non-EU-bound production lots.
Variation in, single figure out
Input variation | Detail |
|---|---|
Alloying elements | Content varies within the code. |
Share of input scrap | Varies batch to batch. |
Grade | Not a reporting dimension. |
All classified under the same CN code. Functional unit, Article 4, IR 2025/2547: one CN code to one embedded emissions figure, reported per CN code regardless of alloy content.
Embedded emissions are computed per CN code, so grade-level differences average out inside the one figure you report.
Electricity
Electricity is the outlier. It has no free-allocation adjustment, because there is generally no free allocation for electricity generation under the EU ETS. The 50-tonne de minimis exemption does not reach it, importers of electricity must always be authorised CBAM declarants. And it is the only CBAM good where using your own measured emissions is not a choice but a privilege, granted only if four conditions are met at once.
What falls outside the scope
Electricity generated in the Exclusive Economic Zone of an EU Member State is not subject to CBAM. There is no obligation to seek authorised CBAM declarant status for it, and no need to access the CBAM Registry on its account.
Who actually declares
The base rule is the same as for every other CBAM good: the declarant is whoever puts their CBAM account number in the customs declaration, the importer, or the indirect customs representative. An importer established outside the EU must appoint an indirect representative. Service providers can be engaged to help, but liability does not travel with them.
Where transmission capacity is allocated through explicit capacity allocation, Article 5(4) of the CBAM Regulation opens a shorter route. It is narrower than it first appears: it only applies where the person holding and nominating the capacity is the importer, and where that importer is not using an indirect customs representative for CBAM purposes. Miss either condition and you are back on the standard authorisation process.
Two routes to a CBAM account number for electricity
Route | Who | Outcome |
|---|---|---|
Article 5(4) route: explicit capacity allocation | Capacity allocated and nominated by the importer, who is not using an indirect customs representative for CBAM | NCA allocates the account number automatically, on supporting documents. Use it in customs declarations from 1 January 2026. |
Everyone else (any condition unmet) | Including third-country importers, who must appoint an indirect customs representative | Standard authorisation process. |
Under the Article 5(4) route, supporting documents go to the national competent authority of the Member State where the customs declaration was lodged, proving that explicit capacity was allocated to the importer and nominated by them. The NCA then allocates a CBAM account number automatically.
Electricity in transit
Three routes, three different answers. The pattern underneath them: what matters is whether the electricity is released for free circulation in the EU, and where it was produced, not which border it last crossed.
Does CBAM apply?
Case | Path | Verdict |
|---|---|---|
Case 1 | Produced in EU to third country to consumed in EU | Does not apply |
Case 2 | Third country A to enters EU to consumed in third country B | Does not apply |
Case 3 | Produced in C to through D to consumed in EU | CBAM applies |
In case 3, if you are using default values, the value to apply is the one for country C, where the electricity was produced, not country D, which it merely passed through.
The default values
Unless you clear the conditionality gates below, default values are what you will be using.
Question | Answer | Detail |
|---|---|---|
Granularity | Country, group or region | Set for a third country, a group of third countries, or a region within a third country. |
Data source | IEA, five-year average | CO2 emission factors per country, based on International Energy Agency data. |
Where to find them | Annex III | To Implementing Regulation (EU) 2025/2621 on default values. |
No value for your country? | Use the EU factor | Also IEA-based and published in the same Annex III. |
Conditionality: the four gates
This is the part worth reading twice. To declare actual embedded emissions for electricity, all four criteria in Annex IV(5) of the CBAM Regulation must be met, they are cumulative, not alternatives. The evidence you need to produce for each is set out in Annex II, Section D.2.4 of Implementing Regulation (EU) 2025/2547.
All four must hold: Annex IV(5), CBAM Regulation
Gate | Condition | Detail |
|---|---|---|
Gate 1 | A power purchase agreement | The electricity claimed is covered by a PPA between the authorised CBAM declarant and a producer located in a third country. |
Gate 2 | Grid connection or no congestion | The installation is directly connected to the Union transmission system, or you can show there was no physical network congestion at any point between it and the Union system at the time of export. |
Gate 3 | Below 550 g CO2 per kWh | The installation does not emit more than 550 grammes of CO2 of fossil fuel origin per kilowatt-hour. |
Gate 4 | Firm nomination, same hour | The amount claimed is firmly nominated to allocated interconnection capacity by all responsible TSOs in the countries of origin, destination and transit, with capacity and generation referring to the same period. |
All four met: you may declare actual embedded emissions for the electricity claimed. Any one unmet: default values apply to that electricity.
Gate 4 is the operationally hardest: the nominated capacity and the generation must refer to the same period, and that period may be no longer than one hour.
What the boundary contains
Only the direct CO2 emissions released during generation are considered. Nothing upstream. The Commission's own example is the manufacture and installation of wind turbines, excluded. If you have been asked to reconcile a CBAM electricity figure against a life-cycle number, this is why they will never agree; life-cycle emission factors are not accepted for CBAM at all.
The part most likely to move
Proposed, not yet law.
The Commission's own guidance flags it directly: the Commission has proposed to modify the conditions for declaring actual embedded emissions of electricity, in the CBAM amendment tabled on 17 December 2025. The proposal is with the co-legislators, the outcome cannot be anticipated, and the conditions above continue to apply in the meantime.
The Commission's explanatory memorandum describes the intent as improving the rules for using default values for electricity imports while making it easier to declare actual values. Of everything in the sector rules, this is what to keep a watch on.
- 17 Dec 2025: Commission tables the amendment proposal: downstream goods, anti-circumvention measures, and adapted electricity rules.
- 12 Jun 2026: Council agrees its general approach, broadly aligned with the proposal and extending the downstream product list further.
- Sept 2026: European Parliament position expected, following the ENVI committee's indicative vote in July.
- End of 2026: Council's stated aim for an interinstitutional agreement.
- 1 Jan 2028: Date from which the scope extension would apply, if adopted.
Five rules, five consequences
Sector | The rule | What it changes in your data |
|---|---|---|
Cement (complex goods) | Complex good; clinker is a precursor and a CBAM good in its own right. | You need a clinker figure before you can produce a cement figure. No clinker data means a default-value fallback that the cement number inherits. |
Fertilisers (direct emissions) | CO2 generated and emitted is direct. CO2 bound in urea is not negative. | Integrated ammonia-urea sites cannot net downstream CO2 consumption against upstream generation. |
Iron and steel (system boundaries) | Lime kilns and coke ovens are outside the boundary. Iron ore pellets are inside the scope. | Do not collect or allocate lime and coke emissions. Do treat CN 2601 12 00 as a CBAM good, with indirect emissions. |
Alloys (functional units) | The functional unit is the CN code, not the grade. | One figure per CN code. Grade-level or scrap-share variation is averaged, not reported. |
Electricity (conditionality) | Four cumulative conditions gate the use of actual emissions; boundary is direct CO2 only. | Assume default values from Annex III unless PPA, connection, 550 g/kWh and hourly nomination all hold and can be evidenced. |
How this connects to your CBAM programme
The sector rules are where a correct methodology still produces a wrong number, because each one moves the boundary of what you must collect. The practical load is real: sourcing a clinker figure before a cement figure, refusing to net urea CO2, excluding lime and coke while treating CN 2601 12 00 as in scope, averaging alloy grades at CN-code level, and evidencing four cumulative gates before you can use actual electricity emissions.
Regilient is built to handle that boundary work: precursor-aware data collection so complex goods carry the right upstream figure, sector-specific direct and indirect emissions logic, default value management from the Annex III and Annex I tables, and regulatory alerts for moving pieces such as the electricity amendment tabled in December 2025.