The European Commission will amend the rules set out for the application of the EU Carbon Border Adjustment Mechanism (CBAM) for power imports to the bloc, providing a pathway to declaring actual emissions values for electricity, according to leaked documents seen by Argus on Tuesday.
The EU will amend the existing guidance to CBAM regulation based on stakeholder feedback that rules for electricity are overly rigid, and that the framework does not acknowledge progress made by non-EU electricity producers in decarbonising their generation mixes, limiting incentives for third-country producers to reduce emissions. The updates were based on a consultation with market participants held from 1 July-26 August.
This regulation means that actual emissions associated with the production of electricity can be declared. Serbia recently announced plans to implement CO2 measurement, reporting and verification standards, ahead of the country's first emissions and carbon tax law.
This appears to provide a pathway for output from renewable sources to be exempt from CBAM. Previously, electricity was treated separately from other physical commodities under the legislation, where carbon quantity would have been based on average country-wide emissions rather than on individual plant emissions.
The document also addresses physical and indirect power purchase agreements (PPA), and clarifies that CBAM will only be applied to explicit capacity allocation, removing the previous language that required the absence of network congestion in order for CBAM exemption to apply for renewables output sold under a PPA.
If actual emissions data are not available, an "average grid emission factor" for exporting countries will be used in order to reflect decarbonisation in the country of origin, which would include countries' current generation mix and be lower than the previous default emissions value, which used an average of IEA emissions over the past five years.
Definition of market coupling
The document also lays out a novel definition of market coupling, which could provide a pathway to CBAM exemption.
The EU proposes that for the purpose of integration of a third country's electricity market with the EU a "memorandum of understanding between the Commission and the third countries that have fully transposed the relevant electricity market acquis" can be agreed, and that this memorandum would then set the "timeline for the application of the exemption foreseen".
Market coupling would then be achieved through legislative means, rather than as defined by market coupling through EU power market regulatory body Acer, which requires an 18-month window for technical preparation once a coupling integration plan is approved.
Serbia is the frontrunner for market coupling, and has previously said that it can couple with the EU by 2027 at the earliest, which would miss the 1 January 2026 deadline for CBAM exemption, as once its application has been approved it is still subject to the 18-month waiting period.
This could indicate that countries with EU regulatory body the Energy Community could receive exemption from CBAM until 2030, as 2022's energy integration package provided a pathway for exemption from CBAM for four years, provided countries coupled with the EU power market.
