On 17 December 2025, the European Union released in one batch 24 implementing and delegated acts related to CBAM, covering key elements such as calculation methodologies, core parameters (default values and benchmarks), verification rules, surrender of CBAM certificates, and the proposed extension to downstream products. Although some of these documents are still in proposal form, the detailed arrangements for the 2026 levy have largely been clarified. Based on the published parameters, companies can already make a preliminary estimate of the number of CBAM certificates that will need to be purchased for the first reporting year.
CBAM will enter its Definitive Period on 1 January 2026. This article focuses on addressing the most critical and widely concerned questions, including:
Which products are subject to CBAM?
Which industries will be most heavily affected?
How is CBAM calculated?
How significant is the difference between using default values and actual values (with calculation examples)?
What are the requirements for using actual values?
Which tax-avoidance practices have been explicitly prohibited?
01 Do You Need to Calculate CBAM?
To answer this question, two steps are required:
Verify whether your products fall within the CBAM scope
Please check against the CN codes shown in the figure below.
CBAM CN codes
If your product is covered by the CN codes, proceed to the next step:
Check whether your downstream EU importer’s total annual imports exceed 50 tonnes
If the total does not exceed this threshold, CBAM reporting is not required. Note that the 50-tonne threshold refers to the importer’s aggregate annual imports from all suppliers and across all CBAM goods, not only imports from a single supplier, nor a single CN code category.
It should also be noted that the newly released EU documents update the product coverage of CBAM and propose an extension to downstream products. In addition to basic and some processed products in the six high-emission sectors (iron and steel, aluminium, fertilisers, cement, electricity and hydrogen), around 180 steel- and aluminium-intensive downstream products are proposed to be included, covering machinery and parts, automotive components, household appliances, electrical equipment, metal products, etc. Although still at the proposal stage, the extension is expected to take effect on 1 January 2028.
Examples of proposed extended coverage: selected CN codes and descriptions of downstream products containing iron/steel or aluminium, such as automotive parts and crane components.
Therefore, manufacturers of automotive parts, household appliances and machinery should start planning in advance and incorporate carbon costs into pricing strategies. Although CBAM is levied on EU importers, the cost is highly likely to be passed back along the supply chain to Chinese manufacturers.
At the same time, Chinese suppliers need not be overly alarmed. For downstream products, CBAM only accounts for the embedded emissions of precursor materials such as iron, steel and aluminium; other materials are not included. For example, for a car door manufactured in China, CBAM only covers the embedded emissions of the steel sheets used, while the processing and assembly stages are outside the CBAM boundary.
In summary, if your products exported to the EU already fall under the current CBAM CN codes, it is essential to prepare for carbon accounting in advance. Even if your current products are not covered, but you plan to export automotive parts, household appliances, machinery or electrical equipment, you should verify whether the metal components used fall under the proposed extended CN codes and prepare early for the first wave of CBAM expansion in 2028.
02 How Is CBAM Calculated?
From a purely formulaic perspective, the CBAM calculation is not complicated and can be broadly expressed as:
However, in practice, CBAM costs are dynamic rather than fixed, due to:
The evolving EU ETS system (phase-out of free allowances, cross-sectoral correction factors, etc.);
Fluctuations in CBAM certificate prices;
Periodic revisions of default values and benchmarks;
The choice of calculation method (default values vs. actual values).
As a result, there is substantial room for carbon cost optimisation in terms of methodology selection and timing of certificate purchases. Exporters are strongly advised to prepare calculations in advance and design an optimal compliance strategy.
03 Is There a Big Difference Between Default Values and Actual Values?
Breaking down the formula shows that, excluding certificate prices, the most influential factor is whether default values or actual values are used.
On the one hand, the specific embedded emissions (SEE) calculated using default values are generally higher than actual values, and default values are subject to a mandatory mark-up. The mark-up rules are as follows:
Sector | 2026 | 2027 | 2028 |
|---|---|---|---|
Iron & Steel | 10% | 20% | 30% |
Aluminium | 10% | 20% | 30% |
Cement | 10% | 20% | 30% |
Hydrogen | 10% | 20% | 30% |
Fertilisers | 1% | 1% | 1% |
For example, the default value for pig iron under CN code 7201 is 1.660. With a 10% mark-up in 2026, the adjusted value becomes 1.660 × (1 + 10%) = 1.826; in 2027, with a 20% mark-up, it becomes 1.992.
On the other hand, the benchmarks used to calculate free EU ETS allowances differ depending on whether default or actual values are applied. In most cases, the benchmark corresponding to default values (BMg) is higher than that for actual values (BMg*). For instance, for CN code 7201 10 11, the benchmark is 1.089 when using actual values, but 1.210 when using default values.
Therefore, although default values usually lead to higher embedded emissions, they also result in higher free allowances. It is not possible to conclude universally which approach is more advantageous without product-specific modelling.
Using pig iron (CN 7201) as an example, multi-scenario simulations based on EU-published parameters show that under four scenarios—actual value equal to, lower than (80% of), higher than (120% of), or equal to default value with annual 2.5% emission reduction—using actual values always leads to a lower CBAM burden than using default values (note that this conclusion may not apply to all products and must be assessed case by case).
Pig iron simulation scenarios, respectively: where the actual value equals the default value; where the actual value is lower than the default value and equals 80% of it; where the actual value is higher than the default value and equals 120% of it; where the actual value equals the default value, and the plant implements emission-reduction measures, achieving a 2.5% annual reduction in carbon emissions. Note: From 2028 onwards, a 30% mark-up is applied for calculation.
As mark-ups on default values increase over time, any short-term advantage of default values will gradually disappear, reflecting the EU’s policy intent to incentivise the use of verified actual values.
04 An Additional Hidden Disadvantage of Default Values
For Chinese exporters, relying solely on default values also entails a country-specific disadvantage. Differences in default values among countries may lead EU importers to favour suppliers from lower-carbon-cost countries, further eroding China’s competitiveness.
According to the CBAM Transitional Period Review Annex, China is the fifth largest source of CBAM goods imports to the EU, with iron and steel accounting for around 87%. Turkey ranks second, with steel accounting for about 49%.
For example, for CN code 7202 60 00, Turkey’s default value is roughly half that of China. If both are assessed using default values, EU buyers will naturally prefer Turkish products, placing Chinese exports at a significant price disadvantage.
05 Requirements for Using Actual Values – Verification Rules
To use actual values, two basic conditions must be met: Reliable, traceable upstream data and professional calculation; Verification by a third-party body accredited by an EU Member State.
Verification bodies must be legal entities accredited by a National Accreditation Body under Regulation (EU) 2023/956. There is currently no official EU-wide whitelist of CBAM verifiers. Instead, a system of qualification-based and dynamic accreditation applies. In practice, most EU ETS-accredited verifiers (such as TÜV, SGS and BV) are technically capable, provided they obtain CBAM-specific accreditation for the relevant product categories. Institutions from non-EU countries may also apply for accreditation.
Accredited verifiers are granted access to the CBAM Registry to validate the authenticity and compliance of embedded emission data. Physical on-site inspections of production facilities are mandatory in the first verification year. In the second year, remote or waived site visits may be permitted under strict conditions, but physical inspections must be conducted at least once every two years.
06 Are There Any Other Ways to Avoid CBAM Payments?
The regulations explicitly prohibit:
Modifying products to fall outside the relevant CN codes;
Artificially splitting shipments to stay below the 50-tonne threshold;
Supplying the EU exclusively from “green production lines”; weighted averages across all production lines for the same product category must be used;
Misusing “Aggregated Goods Categories (AGC)” by combining products with different functional units, such as mixing high-emission stainless steel with low-emission carbon steel under the same AGC to dilute actual values.