EU CBAM draft sets dual methods for free allowances

Free allocations under the EU's carbon border adjustment mechanism (CBAM) will be calculated using two distinct methodologies, a draft of the implementing regulation seen by Argus shows. The draft, which may change before its adoption by the end of the year, also details provisional benchmark values, leaving the key ammonia value unchanged.

The documents give insights into how a major component needed to calculate costs under the mechanism, which will come into effect on 1 January, will likely look. They follow similar drafts emerging last week on the CBAM pricing methodology. The commission has also scheduled 10 December for presenting additional legislation, aimed at strengthening CBAM, tackling circumvention, resource-shuffling, expanding CBAM scope and protecting exports of CBAM goods.

CBAM costs for imported fertilizers to the EU will be calculated by subtracting free allowances from actual emissions, or default values if no actual data is available. Free allowances will decrease between 2026 and 2034, in line with the free-allowance phase-out for European producers under the EU's Emissions Trading System (ETS).

The draft defines two main ways of calculating free allowances: one where actual emissions are known, and one where default values are used as the basis of calculating CBAM costs.

The free allowance calculation for ‘simple goods', such as ammonia, is nearly unchanged on previous expectations. It is based on the CBAM factor — at 97.5pc for 2026 — a cross-sectoral correction factor as known from the ETS, and the benchmark value.

The EU has left unchanged the provisional benchmark for ammonia at 1.57 t CO2e/t, and the same value applies for calculations using actual and default emissions.

The provisional benchmark for nitric acid has also stayed at 0.23t CO2e/t when calculating free allowances for actual emissions data.

Calculating free allowances for complex goods — which are made from other goods, so-called precursors — requires more variables. The calculation for free allowances should reflect the production process, according to the drafts.

On top of the variables for simple goods, the calculation also considers emissions from precursors, for which the draft suggests full-year consumption data and activity levels need to be calculated. The methodologies for these components are not yet known. The draft normally foresees a presumption complex good precursors were produced during the reporting period, and no periods from before 2026 can be considered. If this calculation is adopted in a similar format by the commission, this may add additional complications for importers trying to estimate CBAM costs from 2026.

For calculating actual emissions of a complex good, a series of products can be considered as precursors, namely anhydrous ammonia, nitric acid, NOP, urea, amsul, AN, DAP and MAP.

If producers do not report actual emissions, then free allocations will be calculated using default benchmark values. The draft calculations foresee the inclusion of the CBAM factor, as well as the cross-sectoral correction factor, alongside these benchmarks.

The provisional benchmark values for the default calculation can be found in the table below.

By Claudia Wlk