The European Commission has confirmed that actual emissions from precursors produced at another installation can be used for embedded emissions calculations for a complex good under the Carbon Border Adjustment Mechanism (CBAM). The use of those values is conditional on support from a verification report. The downstream installation’s verifier must be able to rely on that report.
The requirement increases the role of verified carbon information across supply chains. Producers in steel, aluminium, cement and fertiliser may have internal monitoring systems, but they still may not be able to apply lower actual-emissions figures. This can occur when an upstream supplier cannot provide precursor data that is adequately verified.
Default values apply when verified precursor evidence is missing
When the required evidence is not available, producers may use applicable CBAM default values. For most non-fertiliser goods, the default values include a 10% mark-up in 2026, a 20% mark-up in 2027 and a 30% mark-up from 2028. Fertilisers face a lower mark-up of 1%.
The rising mark-ups are designed to strengthen incentives to obtain verified actual-emissions data. The incentive applies particularly when a supplier’s real emissions are below the relevant default value. In those cases, using defaults can increase the embedded emissions basis for CBAM calculations.
Verified precursor information exchange expands during 2027–2028
CBAM-related data exchange requirements change over time. During 2027, operators will need to exchange verified precursor information outside the CBAM Registry. The expected availability of direct operator-to-operator sharing of actual verified precursor emissions through the Registry is set for 2028.
Companies are therefore expected to put in place controlled contractual arrangements before the planned digital infrastructure is fully available. These arrangements must enable downstream producers and their verifiers to obtain evidence needed to support calculations based on actual emissions. The evidence requirements are linked to the verification report that downstream verifiers can rely on.
Financing and procurement risks tied to upstream verification gaps
The financing implications relate to how missing precursor data can affect a manufacturer’s CBAM costs. Weak upstream evidence can result in higher and less predictable liabilities. This can put pressure on gross margins from EU sales and increase working-capital requirements.
Banks assessing industrial borrowers may need to review more than the borrower’s own emissions reporting. They may also need to consider whether critical suppliers can substantiate the emissions assumptions used in financial forecasts and business plans. The focus extends to whether upstream verification supports the embedded emissions approach under CBAM.
Long-term procurement contracts may increasingly include obligations connected to verified data handling. These obligations can include maintaining verified emissions data, providing supply verification reports, identifying the installation of origin and compensating buyers when evidence failures lead to use of higher default values. Such contract terms are intended to address gaps that could otherwise affect embedded emissions calculations.
Verified suppliers may become preferred partners for EU-bound manufacturers
For exporters in Southeast Europe supplying the EU market, the CBAM requirements create both compliance costs and commercial opportunities. Suppliers with robust monitoring, reporting and verification (MRV) systems and independent verification may become preferred partners for manufacturers. This preference may apply even when competing materials have similar physical characteristics.
The CBAM framework also introduces an additional dimension of industrial credit quality tied to carbon substantiation. It relates to whether suppliers can support the carbon content of goods they provide with verified information. This capability becomes relevant as reporting requirements expand through 2027 and 2028.