With the EU Carbon Border Adjustment Mechanism (CBAM) entering its full implementation phase starting in 2026, Chinese enterprises exporting products from relevant sectors to the EU are about to face a new set of cost accounting challenges. This article will explain the calculation logic of CBAM in four steps and demonstrate through a concrete case study how to move from product classification all the way to calculating the final tax cost.
Step 1: Precisely Identify the Customs Code
Determine the exact position of your exported product within the EU's "Combined Nomenclature" (CN) coding system. This is the foundation for all subsequent calculations and directly corresponds to the sectors and product scopes covered by CBAM.
For example, suppose you export unwrought non-alloy aluminum (aluminum ingots). Under the CN codes, it is typically classified under 7601 10 00. According to the EU CBAM regulations, the aluminum sector (including products under codes 7601, 7603, 7604, 7605, 7606, 7607, 7608, and 7609) is explicitly included within the scope of control.
Step 2: Calculate the Embedded Emissions
Calculating the product's embedded carbon emissions is the core of CBAM calculation. It requires calculating the greenhouse gases generated during the production process per ton of product, expressed in tons of CO2 equivalent (tCO2e) per ton of product. The calculation covers both direct emissions (e.g., fuel combustion during production) and indirect emissions (primarily referring to purchased electricity consumption). That is: Embedded Emissions = Direct Emissions + Indirect Emissions
Example: Calculating the embedded emissions for 1 ton of pig iron (CN: 7205 10 00).
Direct Emissions: Consuming 0.6 tons of coking coal (emission factor 2.2 tCO2e/ton) and 0.1 tons of injection coal (emission factor 2.6 tCO2e/ton) results in 1.58 tCO2e.
Indirect Emissions: Purchased electricity of 500 kWh (grid emission factor 0.5 kgCO2e/kWh), converted to 0.25 tCO2e.
Total Embedded Emissions = 1.58 + 0.25 = 1.83 tCO2e/ton.
If an enterprise cannot calculate the actual value immediately, it may refer to the default values published in official tables. However, default values are generally higher, so this is not recommended.
Step 3: Determine Carbon Cost and Apply Deductions
The EU will calculate the theoretical carbon cost that should be borne within the EU based on your calculated embedded emissions, multiplied by the weekly average closing auction price of EU carbon market (EU ETS) allowances.
Theoretical CBAM Cost = Embedded Emissions (tCO2e/ton) × EU Carbon Price (€/tCO2e)
Example: If the EU carbon price is €80/tCO2e, the theoretical cost for that ton of pig iron is 1.83 × 80 = €146.4.
Deduction Mechanism: If a carbon price has already been actually paid for these emissions in the country of production (e.g., China), such as through the purchase of carbon allowances, an equivalent deduction can be applied for. Assuming the paid cost is about €7.5 per tCO2e, the deductible amount would be 1.83 × 7.5 = €13.725.
Step 4: Calculate the Final Payable CBAM Certificate Cost
Finally, the importer needs to purchase CBAM electronic certificates for the non-deductible portion.
Payable CBAM Certificate Cost = Theoretical CBAM Cost – Deductible Paid Carbon Cost
Continuing the previous example:
Payable CBAM Certificate Cost = €146.4 – €13.725 = €132.675 per ton of aluminum ingot.
The full implementation of CBAM in 2026 essentially levels the carbon cost for parts of global industries to the EU standard. For Chinese exporting enterprises, it is crucial to start preparing CBAM reports according to EU requirements as soon as possible. This includes detailed calculation processes, data sources, and documentation proving paid carbon prices. Only by thoroughly understanding the rules and solidly managing data can companies quickly gain their footing under the new regulations.