How to Calculate Embedded Emissions for CBAM Reporting

Embedded Emissions: The Technical Core of CBAM Reporting

The Carbon Border Adjustment Mechanism (CBAM) aims to prevent carbon leakage by putting a price on the greenhouse gas emissions embedded in certain products imported into the EU. At the heart of this mechanism lies the concept of "embedded emissions" — the total greenhouse gas emissions directly and indirectly released during a product's manufacturing process.

Regulation (EU) 2023/956 establishes the general framework for calculating embedded emissions (European Parliament and Council, 2023), while Annex III of Commission Implementing Regulation (EU) 2023/1773 defines the calculation formulas and methodology in detail (European Commission, 2023a). This guide is designed to help enterprise teams perform embedded emissions calculations accurately and consistently.

Defining Embedded Emissions: Direct and Indirect Components

Under CBAM, embedded emissions consist of two components:

Direct Embedded Emissions

Emissions occurring within the installation boundaries during the product's manufacturing process:

• Fuel combustion emissions (kilns, boilers, dryers)
• Process emissions (arising from chemical reactions, such as clinker calcination)
• Emissions from products used in the manufacturing process

Direct emissions are mandatory for all CBAM product categories.

Indirect Embedded Emissions

Emissions from the generation of electricity consumed during the manufacturing process. Whether indirect emissions are included varies by product category:

The mandatory inclusion of indirect emissions for aluminium and hydrogen reflects the electricity intensity of these production processes. Aluminium smelting requires electricity consumption that constitutes the majority of total emissions.

The Core Calculation Formula

According to Annex III of Implementing Regulation (EU) 2023/1773, the specific embedded emissions of a product are calculated as follows (European Commission, 2023a):

Specific embedded emissions (SEe) = Direct specific embedded emissions (SEe,dir) + Indirect specific embedded emissions (SEe,indir)

Each component is derived by dividing total installation-level emissions by the production quantity:

SEe,dir = AttrEm,dir / AL

Where:

• AttrEm,dir = Direct emissions attributed to the product (tonnes CO2e)
• AL = Production quantity in the reporting period (activity level)

For indirect emissions:

SEe,indir = AttrEm,indir / AL

Where:

• AttrEm,indir = Indirect emissions calculated by multiplying electricity consumed by the applicable emission factor

Calculation Details by Product Category

Cement

Cement production is one of the sectors with the highest direct emission intensity under CBAM. Emission sources include:

Process emissions:

• Calcination of calcium carbonate (CaCO3) in clinker production: CaCO3 → CaO + CO2
• This reaction accounts for approximately 60 percent of cement production emissions.

Fuel combustion emissions:

• Fuels used in the rotary kiln (petroleum coke, coal, alternative fuels)
• Where fuel diversity is high, separate emission factors apply for each fuel type.

Calculation steps:

1. Determine total clinker production during the reporting period (tonnes).
2. Calculate process emissions from the carbonate content in the raw material composition.
3. Calculate fuel combustion emissions using consumption data for each fuel type and the corresponding emission factors.
4. Divide total direct emissions by the clinker or cement production quantity to obtain specific emissions.

Relevant product groups for cement include clinker, Portland cement, aluminous cement, and other cement types. Specific emissions are calculated separately for each product group.

Iron and Steel

In the iron and steel sector, the production route fundamentally determines the emissions profile:

Integrated route (BF-BOF):

• Pig iron production from iron ore in the blast furnace (BF)
• Steel production from pig iron in the basic oxygen furnace (BOF)
• Emissions from the coke oven
• High emission intensity (typically 1.8-2.2 tonnes CO2 per tonne of crude steel)

Electric arc furnace route (EAF):

• Uses scrap steel or direct reduced iron (DRI)
• Significantly lower direct emissions
• High electricity consumption (though indirect emissions are not included for steel under CBAM)

Key considerations in the calculation:

• Precursors: The embedded emissions of intermediate products such as pig iron, ferroalloys, and DRI must be tracked. Emissions from precursors purchased from other installations are included in the final product's calculation.
• Attribution rules: Where multiple products are manufactured at a single installation (e.g., flat steel and long steel), emissions must be attributed to products according to the rules in Annex III.

Aluminium

Aluminium is one of only two product categories where indirect emissions are mandatory. The calculation has a two-layer structure:

Direct emissions:

• CO2 emissions from anode consumption (Söderberg or pre-bake anode technology)
• PFC (perfluorocarbon) emissions — CF4 and C2F6 formed during the anode effect
• Emissions from the anode production facility

Indirect emissions:

• Electricity consumption of the electrolysis process (typically 13-16 MWh per tonne of aluminium)
• The emission factor of electricity varies significantly depending on the source.

The choice of electricity emission factor for aluminium's indirect emission calculation is critical. The installation can use an emission factor based on its actual electricity supply contract, or apply the default values in the Implementing Regulation.

Fertilisers

Fertiliser types covered by CBAM include ammonia, nitric acid, urea, and mixed fertilisers. Emission sources differ for each product:

Ammonia (NH3):

• CO2 emissions from natural gas reforming
• Process energy consumption
• Ammonia is a precursor for many fertiliser products.

Nitric acid (HNO3):

• N2O (nitrous oxide) process emissions — with a GWP value 273 times that of CO2
• The presence and efficiency of catalytic abatement technology significantly affects the calculation.

Urea:

• Ammonia production emissions (as a precursor)
• CO2 fixation: CO2 is used as a raw material in urea production — whether this amount can be deducted from embedded emissions is determined according to the rules in Annex III.

Default Values vs. Actual Data

Actual Data Approach (Real Emissions)

Actual data measured at the installation level provides the most accurate calculation. To use actual data:

• The installation must have a monitoring, reporting, and verification (MRV) system in place.
• Data must cover the reporting period (typically a calendar year).
• The calculation methodology must be consistent with the formulas in Annex III of the Implementing Regulation.

Default Values

Where actual data is not available, default values may be used. The European Commission's Joint Research Centre (JRC) has prepared a technical report providing default emission values by product category and country of origin (JRC, 2023).

Default values are structured in three tiers:

1. Country-specific default values: Based on the average emission intensity of the country of origin
2. Regional default values: Based on geographic region averages
3. EU default values: Based on the performance of the highest 10 percent of installations under the EU ETS — the highest values

In the definitive period (post-2026), the use of default values will be significantly restricted. EU default values typically contain emission values 25-50 percent higher than actual data — translating directly into higher CBAM certificate costs. Transitioning to actual data is critical for both accuracy and cost.

Precursor Tracking

One of the most complex calculation dimensions of CBAM is tracking precursor emissions. A precursor is a product used as an input in the manufacture of the final CBAM product that itself carries significant embedded emissions.

Precursor Examples

Calculation Approach

Precursor embedded emissions are added to the final product's embedded emissions as follows:

SEe,dir (final product) = Direct installation emissions / Production quantity + Σ (Precursor specific emissions × Consumption ratio)

Here, the "consumption ratio" refers to the amount of precursor required to produce one tonne of the final product. The Implementing Regulation requires precursor embedded emission values to be based on either actual data or default values.

If a precursor is purchased from a separate producer, an embedded emissions declaration must be requested from that producer. If a declaration cannot be obtained, the relevant default values apply.

Data Requirements and Collection Process

Facility-Level Data Requirements

The following data must be collected at the installation level for embedded emissions calculations:

Energy and fuel data:

• Type and quantity of each fuel consumed (GJ or tonnes)
• Net calorific values (fuel-specific or default)
• Electricity consumption (MWh) and electricity source information

Production data:

• Product-specific production quantities for the reporting period (tonnes)
• Precursor consumption quantities
• Waste and by-product quantities (needed for attribution calculations)

Process data (sector-specific):

• Raw material composition (e.g., carbonate content in cement)
• Process parameters (e.g., anode effect frequency in aluminium)
• Emission abatement technologies and their efficiencies

Data Collection Timeline

Quarterly reporting is mandatory during the transitional period. Data collection processes must therefore operate on at least a quarterly cycle. The European Commission's CBAM Guidance Document provides practical recommendations on establishing data collection processes (European Commission, 2023b).

Recommended approach:

1. Assign a CBAM data steward for each installation.
2. Establish a monthly data collection cycle (allowing sufficient lead time for quarterly reporting).
3. Set up emissions data-sharing protocols with precursor suppliers.
4. Document data gaps and estimation methods.

Verification Requirements

Third-party verification of embedded emissions data is not mandatory during the transitional period. However, once the definitive period begins (after January 1, 2026), verification by accredited verifiers will become compulsory.

To prepare for verification now:

• Document calculation steps in a reproducible manner.
• Archive activity data sources (invoices, production records, meter readings).
• Record the rationale behind assumptions and estimates.
• Establish internal audit processes — conduct consistency checks between quarterly reports.

Common Calculation Mistakes

1. Failing to Include Precursor Emissions

Calculating only the direct production emissions of the final product is not sufficient. The embedded emissions of purchased precursors must also be included in the total.

2. Unit Mismatches

Mismatches between the units of emission factors and the units of activity data lead to significant calculation errors. Standardize all calculations to tonnes CO2e per tonne of product.

3. Incorrectly Scoping Indirect Emissions

Indirect emissions are not included in CBAM calculations for products other than aluminium and hydrogen. However, bear in mind that the scope may expand in the future.

4. Over-Reliance on Default Values

Default values are generally higher than actual emissions. In the definitive period, this difference translates directly into financial liability. Build actual data collection capability as soon as possible.

Next Steps

Embedded emissions calculation is a technical, detail-intensive process, but it is not one that can be deferred. The transitional period is a designed window for learning the calculation methodology, establishing data collection processes, and correcting errors.

Action Item: Identify the relevant calculation formulas in Annex III of the Implementing Regulation for your CBAM-covered products and conduct a pilot calculation using your available data. Identifying data gaps is the most valuable output of this exercise.

References:

1. European Commission, Commission Implementing Regulation (EU) 2023/1773, Annex III: Rules for Calculating Embedded Emissions, 2023a.
2. European Parliament and Council, Regulation (EU) 2023/956 (CBAM Regulation), 2023.
3. European Commission, CBAM Guidance Document for Installation Operators in Third Countries, 2023b.
4. JRC (Joint Research Centre), Technical Report on CBAM Default Values for the Transitional Period, 2023.