The operator of an installation producing CBAM goods outside the EU is the second key role for the functioning of the CBAM. Installation operators are the persons who have direct access to information on the emissions of their installations. They are therefore responsible for monitoring and reporting the embedded emissions of goods they have produced and are exporting to the EU.
The first element is the monitoring of direct emissions of the installation. However, monitoring of an installation’s emissions is only the initial part of determining embedded emissions of a product. Whenever an installation produces several different products, the emissions must also be appropriately attributed to the individual products. Due to the specific rules for attributing emissions to goods, there is also a need to determine certain flows of heat (steam, hot water, etc.) to and from the installation, and between relevant production processes. The same applies to so-called “waste gases” (e.g. blast furnace gas in the steel industry). Both heat and waste gases contribute to the direct emissions.
You must also monitor and report to the reporting declarant(s) the quantities of specific input materials which themselves have embedded emissions (the so-called “relevant precursors”, which are themselves CBAM goods) used in the manufacturing process, and determine the embedded emissions of these precursor materials. Where you purchase precursors to produce other CBAM goods, you need to obtain data on the embedded emissions from the supplier of these precursors.
Indirect emissions released from the generation of the electricity consumed during the production of all CBAM goods similarly must be monitored for the purposes of the CBAM22 and attributed to the goods produced. Again, emissions embedded in precursors must be included, where relevant.
Note that only direct emissions are relevant for electricity imported into the EU as a good in its own right. The treatment of electricity as a CBAM good is discussed further in Section 7.6.
Explanations of how to determine these embedded emissions and to define system boundaries are elaborated upon in Sections 5.2 and 5.
Finally, you must communicate to the importer(s) the carbon price due in the production of the good within its own jurisdiction, if any. This includes the carbon price per tonne CO2e and the amount of free allocation or any other financial support, compensation or rebate received per tonne of the product relevant for the CBAM. Notably, in case of complex goods, the carbon costs due by the producers of precursor materials should also be taken into account.
The reporting period is the reference period for determining embedded emissions. Operators and importers have different reporting periods.
Installation operators
For you (as an operator), the default reporting period is twelve months to allow you to collect representative data that reflects an installation’s annual operations.
The twelve-month reporting period may be either a:
• Calendar year – which is the default option for reporting; or alternatively a
• Fiscal year – if this can be justified on the basis that the data for a fiscal reporting year is more accurate, or to avoid incurring unreasonable cost; for example, where the financial year end coincides with an annual stock take of fuels and materials.
A period of twelve months is considered representative as this reflects seasonal variations in an installation’s operations, as well as any periods of disruption to the process resulting from planned annual shutdowns (e.g. for maintenance) and start-ups. A full year also helps to mitigate any data gaps e.g. by taking meter reads on either side of any missing periodic data points. However, you may also choose an alternative reporting period, of a least three months, if the installation participates in an eligible MRV system and the reporting period coincides with the requirements of that MRV system.
In all the above cases, the direct and indirect embedded emissions of goods should be calculated as the average of the reporting period chosen.
In order to allow representative data to be reported from the start of the transitional period, operators should aim to share a full year of data for 2023 in January 2024, with importers, for the first quarterly report. In order to do this, you should:
• Collect emissions data and activity data from the start of the transitional period, for as much of 2023 as is available. For the period before actual emissions monitoring starts23, you should make estimates based on best available data (e.g. by using production protocols, backward calculation based on known correlations between known data and the relevant emissions, etc.).
• Start to collect data for the last quarter of 2023 in preparation for reporting a full year of data to importers, if possible, as early as possible at the start of January 2024.
In light of the above, you should therefore start preparing your monitoring methodology as soon as possible, and aim to start actual monitoring as soon as possible after 1 October 2023. You should share your embedded emissions data with importers as soon as they are available after the end of each quarter.
CBAM goods are goods currently imported into the EU from the cement, iron and steel, aluminium and some chemical industries (fertilizers and hydrogen), and electricity. To answer this question, you must compare the CN codes3 of your products against the list of goods given in Annex I to the CBAM Regulation. More information on how to approach this can be found in Section 5.2 of this document, and subsequent sub-sections within section 5 set out further detail for each sector.
If you do not produce such goods, you do not have to read this document. However, it is written to be of help also to all other kinds of interested audiences (academia, CBAM importers, GHG verifiers, competent authorities, consultants, etc.). If you just want to understand how the CBAM works in general, you may find an introduction to the CBAM in Section 4.
The CBAM affects you if this is the case.
Please note that your products may also be purchased by clients who themselves manufacture CBAM goods, and your products may serve as “precursor” for their CBAM goods, which then may be exported to EU countries. Also, if you sell your products to traders who then sell them to EU customers, your goods fall under the CBAM.
In all those cases where CBAM goods end up in being imported into the EU, at some point the importer will contact you to gather information on the “embedded emissions” of these CBAM goods. Alternatively, the operator using your goods as precursor for producing other CBAM goods will ask the level of embedded emissions. Therefore, you must be prepared to provide these data and as soon as possible start to develop a monitoring methodology at your installation, as described in this guidance document.
What are embedded emissions? The concept has been developed to reflect as much as possible the way in which emissions are covered by the EU ETS if the CBAM goods were produced in the EU. The EU ETS requires operators to pay a price for their own (“direct”) emissions. However, if they consume electricity, they also experience the CO2 costs included in the price of electricity they purchase4 (“indirect emissions”). The same applies to the input materials needed for their production process, and which may be supplied by an EU ETS installation. These so-called precursors therefore contribute to the CO2 costs the EU ETS installation faces. The “embedded emissions” are defined in parallel to the emissions causing CO2 costs in the EU ETS: they take into account the direct and indirect5 emissions of the production process as well as the embedded emissions of precursors. They are similar in concept to a carbon footprint of the goods. The scope of the CBAM is principally related to the rules of the EU ETS and therefore has differences to other methods for calculating product carbon footprints such as the “GHG Protocol” or ISO14067.
To answer this question, you need to perform the following steps to develop your “monitoring methodology documentation”, i.e. the handbook you and your personnel use as a basis for performing monitoring tasks in a consistent way during the coming years. The presented steps will ensure that all the data which you need to calculate embedded emissions is covered.
• Step 1: Define the installation’s boundaries, production processes and production routes. Production process means the system boundaries which are needed to attribute emissions to specific goods produced6. Each “Aggregated good category” (i.e. an aggregation of goods with different CN codes, but suitable to be covered by common monitoring rules) corresponds to one production process. Guidance on system boundaries is found in Section 5.2 and for each sector specific sub section in Section 5.
• Step 2: Define the reporting period you are going to use. The default case is the (European) calendar year. However, if your installation is situated in a country with a different calendar, or where there are other reasonable arguments for a different period, this may be used, too, if it covers at least three months. Suitable alternative periods include, in particular, the reporting periods of a carbon pricing scheme or compulsory emissions monitoring scheme in the country of your installation, or the fiscal year used. The main reason for choosing such other periods is that there may be additional scrutiny applied for those purposes, such as stock taking and financial auditing for annual financial accounts, or third-party verification of emissions, which gives a higher level of confidence in the quality of your data when also used for CBAM purposes. Further guidance on reporting periods is given in Section 4.3.3.
• Step 3: Identify all the parameters you need to monitor:
o Direct emissions of the installation: you have two options available:
a) The “calculation-based” approach, where you need to determine the quantities of all fuels and relevant materials7 consumed, and corresponding “calculation factors” (in particular the so-called “emission factor” based on the carbon content of the fuel or material);
b) The “measurement-based” approach, where you need to measure online the concentration of the greenhouse gases as well as the flow of the flue gas for each “emission source” (stack).
Note, however, that during an introductory phase until 31 July 2024 you may apply other methods allowed for emissions monitoring in your jurisdiction, if they lead to a similar emission coverage and accuracy. These other methods may include default values made available and published by the European Commission for the transitional period. Other default values can be used on the condition that the reporting declarant indicates and references in the CBAM reports the methodology followed for establishing such values. For PFC 8 emissions from primary aluminium production a special methodology based on overvoltage measurements should be applied. For N2O emissions from nitric acid production, the measurement-based method is compulsory. In all other cases, you may choose which method best fits to the situation of your installation.
Additionally, if your installation has more than one production process, there may be a need to monitor fuel or material streams between the production processes in order to enable correct attribution of emissions to production processes.
The rules for monitoring these direct emissions are found in Annex III, section B of the Implementing Regulation. Section 6.4 of this document gives relevant guidance on details.
To ensure similar treatment between installations in the EU ETS and in other countries, a carbon price due in the country where a CBAM good is produced will allow for a reduction in the CBAM obligation in the definitive period from 2026 onwards. This is already a reporting obligation during the transitional period of the CBAM (namely until the end of 2025). You need to ensure that you include information on carbon pricing in your monitoring methodology, so you can convey the relevant information to the importer of your CBAM goods. During the transitional period such reporting on the carbon prices due around the world is important for the European Commission to consider any further improvements of the CBAM legislation in that regard.
If your installation is subject to a carbon price, you will have to collect information on the carbon price due, in such a way that you can attribute it to production processes and CBAM goods categories in a similar way as you attribute emissions to the goods. The effective carbon price is to be considered, i.e. taking into account any applicable rebates (in case of an ETS, any free allocation is considered a rebate).
Note that you need to collect information for each precursor purchased if a carbon price applies in its country of origin. If the producer of the precursor does not provide the required information, you must assume the carbon price due for the precursor to be zero.
From 2026, the definitive period of the CBAM will apply. That means from 1 January 2026 onwards, importers will have to bear a “CBAM obligation” in the form of certificates, which they purchase at the average price of EU ETS allowances, for every CBAM good imported into the EU. There will be a phase-in with increasing coverage of embedded emissions by the CBAM obligation from 2026. The full embedded emissions will only be covered from 2034 onwards15.
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