With the full implementation of CBAM approaching and EU export orders on the horizon, are you unsure about how much carbon tariff you'll need to pay?
Unclear about the cost baseline, leaving you unconfident in quoting prices or optimizing production processes?

Understanding how carbon costs are calculated is key to negotiating better with your clients.

I. The Calculation Formula
Under the EU Emissions Trading System (ETS), local EU factories producing high-carbon products receive a certain amount of free carbon emission allowances. As a supplement to the EU ETS, the Carbon Border Adjustment Mechanism (CBAM) ensures that similar products inside and outside the EU bear consistent carbon costs. Therefore, it also includes a Free Allowance Adjustment (FAA) mechanism, which is one of the key factors influencing CBAM costs.

Overall Carbon Cost Calculation Formula
Total carbon cost of imported goods = (Total embedded emissions - Free Allowance Adjustment (FAA)) × CBAM certificate price - Carbon price already paid in a third country.
Note: The CBAM certificate price will be dynamically adjusted based on the allowance price in the EU ETS.

II. Calculation Method for Free Allowance Adjustment (FAA)
FAA = Total mass of imported goods × Specific Embedded Free Allowance (SEFA) per ton of product.
The calculation of SEFA depends on two scenarios:

If using the supplier’s actual emission data, it must be calculated according to the corresponding rules.

If using the officially published default values, the default free allowance value set for the product is applied directly.

III. Detailed Calculation Logic for SEFA
When using actual data:
SEFA = Process-specific embedded free allowance + Embedded free allowance of relevant precursor materials.
Process-specific embedded free allowance = CBAM factor × Cross-sectoral correction factor × CBAM benchmark value for that process.
(The CBAM factor and cross-sectoral correction factor are published in relevant regulations, and the CBAM benchmark value for the process is set based on the ETS benchmark value.)

For simple products (e.g., sintered ore), only the process-specific allowance is calculated. For complex products (e.g., steel screws), the allowances for their CBAM-regulated raw materials must also be added.

(Column A in the table represents the "CBAM benchmark value for the process"; Column B represents the "CBAM benchmark value for the product.")

IV. Calculation Scenario Exercise
Taking hot-rolled steel sheets (CN Code: 72085120) produced by a domestic enterprise as an example:

If calculated based on actual production data, the carbon cost for every 100 tons of product is approximately 70,000 RMB.

If calculated using the default values published by the EU, the carbon tariff for every 100 tons of product amounts to 150,000 RMB—more than double the cost.

The EU has established a default value calculation method for enterprises unable to provide actual data, which is essentially a "punitive" accounting standard. This standard is not only significantly higher than the actual emission levels of most enterprises but also faces the risk of being phased out in the future. More critically, the default values currently set by the EU for Chinese exports are generally higher than the transition period standards and are planned to increase by 10%, 20%, and 30% in phases over the coming years.

This means that relying solely on default values to estimate the "carbon tariff" will severely overestimate your actual compliance costs. In the long run, dependence on this approach will not only subject you to continuously rising cost pressures but may also cause you to lose opportunities in the European market due to diminished competitiveness.