Cross-border renewable electricity contracts must satisfy legal and evidentiary requirements to qualify for installation-specific actual emissions under the EU Carbon Border Adjustment Mechanism (CBAM). Whether an importer can use actual emissions values rather than default values can hinge on the contract structure used for physical supply. The distinction between a direct power purchase agreement (PPA) and a tripartite arrangement is central to this eligibility.
Under the current CBAM framework, default values apply to imported electricity unless all conditions for using installation-specific actual emissions are met. These conditions include a qualifying physical PPA relationship and compliance with relevant network requirements. They also require a generating installation below 550 g CO₂/kWh fossil-fuel-origin emissions, firm electricity nominations matched with production in periods of no more than one hour, and independent verification supported by at least monthly interim evidence.
Current conditions for using installation-specific actual emissions
The CBAM approach keeps default values as the standard method for imported electricity. Actual-emissions treatment becomes available only when the full set of requirements is satisfied. The framework links contract structure, network compliance, generation performance, nomination timing, and verification evidence.
Among the requirements, a physical PPA relationship must be established in a way that supports the importer’s claim for actual emissions. Network requirements must be met alongside firm nominations that align with production within a one-hour window. Independent verification must be supported by at least monthly interim evidence to substantiate the claim.
Implementing rules on contractual links for physical electricity supply
Commission Implementing Regulation (EU) 2025/2547 sets out more specific requirements for demonstrating the contractual relationship behind physical electricity supplies. A qualifying physical PPA may be concluded directly between the electricity producer and the relevant authorised CBAM declarant. This direct link is presented as a key contractual basis for eligibility.
Where an intermediary is involved, the contractual arrangement must be supported by one coherent three-party agreement covering the relevant physical supply. The rules distinguish this from arrangements based on a sequence of bilateral resale agreements. Such resale chains do not, by themselves, establish the same evidentiary chain recognized under the implementing rules.
A direct physical PPA between the producer and the authorised CBAM declarant provides the clearest contractual connection. If a trader remains between them, the three-party structure must establish a coherent relationship for the relevant supply. Eligibility should not rely solely on separate resale contracts forming a chain of transactions.
Evidentiary obligations extend beyond delivery timing
Contractual arrangements must support the annual compliance cycle under CBAM, including activities that continue after physical electricity delivery has been settled. Data-access provisions and record-retention obligations need to remain effective beyond delivery. Cooperation with verifiers and rights to correct information must also continue to work after events such as contract termination or changes in service provider.
The timing of CBAM declarations affects how these provisions operate in practice. Physical electricity trades may be completed well before corresponding declarations and supporting evidence are finalised. Parties therefore need to preserve access to records and maintain the ability to address discrepancies when evidence is compiled and verified.
Contract structure considerations for steel and aluminium procurement
Steel and aluminium producers may use traders to aggregate renewable generation and manage electricity balancing. Even where renewable PPAs retain commercial value for industrial consumers, portfolio resale arrangements should not automatically be treated as preserving eligibility for actual-emissions treatment of imported electricity. Such arrangements also do not automatically reduce metal products’ current CBAM liability.
The contractual structure needs to separate commercial benefits of renewable electricity procurement from CBAM-specific conditions tied to installation-specific actual emissions. The existence of a renewable electricity supply arrangement alone does not establish that all requirements have been met. Eligibility depends on whether the contract design supports each condition required under CBAM.
PPA premium review and operational testing before release
Lenders need to assess whether a PPA premium remains supportable after review against applicable legal requirements. Where project debt-service assumptions rely on that premium, assessment should occur before financial close rather than after commercial operation begins. This timing requirement links financing decisions to compliance-related contract structure.
The contract review should include an operational test involving commercial, scheduling, compliance, treasury and engineering teams. Teams are expected to trace a sample transaction through electricity nomination, invoicing, evidence closure and fallback settlement before product release. The purpose is to test whether contractual terms can be implemented across operational and compliance functions.
For contract managers, release decisions should depend on whether parties’ arrangements can be reconciled consistently across ownership-title flow, payment flows, data rights and fallback formula. This approach should avoid reliance on informal assumptions when confirming implementation readiness for CBAM-related evidence needs.
Separate EU reform proposal would change future electricity treatment
A separate reform proposal identified as COM(2025) 989 would materially change how electricity is treated under CBAM if adopted. The proposal includes revisions to the methodology used for electricity default values and changes to parts of the conditions governing use of actual values. It also broadens how physical PPAs are defined by including arrangements involving intermediaries.
The reform proposal would modify congestion-related aspects and electricity nominations as part of its changes. It also notes that these updates could alter contractual structures relevant to electricity importers if enacted. As of 12 June 2026, a Council negotiating position has been adopted, followed by a European Parliament position on 15 September 2026.
Despite progress in negotiations, COM(2025) 989 remains under interinstitutional discussion and has not become enacted law. Potential provisions are therefore distinct from current-law pricing and compliance assumptions used for existing CBAM claims. For financing and contract administration under current rules, consistency between contractual transfer of title, payment obligations and evidence supporting CBAM treatment remains central.