Dubrink Weekly - May 11

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CBAM Methodology Update: Functional Units and the Transition to Definitive Reporting

By Dubrink

Welcome to Dubrink Updates. As the Carbon Border Adjustment Mechanism (CBAM) moves firmly into its definitive phase, last week’s European Commission webinar highlighted a critical shift in how embedded emissions must be calculated and verified. In case you missed the session, we have curated the essential technical updates and policy shifts you need to manage your transition to actual financial liability.

The Functional Unit: A New Anchor for Emission Calculations

A central takeaway from the Commission's recent guidance is the mandatory implementation of the "functional unit" for determining embedded emissions. Under Implementing Regulation (EU) 2025/2547, the functional unit serves as the primary reference for all calculated emissions, moving away from the simpler mass-based reporting used during the transition.

While most goods are defined by the 8-digit CN code, specific rules now apply to cement and fertilisers. Cement calculations must be based on tons of clinker, while fertilisers are measured by kilograms of nitrogen content. This change ensures reporting is directly linked to the specific chemical components that drive carbon intensity.

Production Process Integration and System Boundaries

The Commission has clarified that production processes are now strictly tied to the functional unit and cannot be split into separate production routes for the same CN code. This ensures consistency but requires operators to aggregate data across all lines producing the same category of goods.

To reduce administrative friction, certain finishing processes with limited carbon impact—such as blasting, painting, and welding—are now excluded from the system boundaries for iron, steel, and aluminum. However, high-impact processes like galvanizing remain within the boundary and must be accounted for, even if they occur at a separate installation.

Indirect Emissions and Evidence Requirements

Reporting requirements for indirect emissions have become more targeted, primarily affecting goods like cement and fertilizers. To avoid default grid values, importers must now provide clear evidence of a direct technical link or a physical Power Purchase Agreement (PPA) for their electricity.

Documentation must include smart metering data proving electricity was consumed within the same one-hour window as its production. Without this granular data, the Commission will require the use of weighted averages from all electricity sources, potentially leading to a higher reported carbon footprint and increased financial exposure.

The Monitoring Plan: The Foundation for Verification

The most significant operational shift is the requirement for a formal Monitoring Plan (MP). Unlike the transitional period’s flexible documentation, the MP is now a mandatory, auditable dossier that tracks every monitoring methodology used at an installation.

The MP is a prerequisite for the annual verification of an operator’s emissions report. It must be prepared in English and include detailed descriptions of production processes and system boundary diagrams. This document is the primary tool for verifiers to plan site visits, which are mandatory for the first year of the definitive phase to ensure data integrity.

Executive Takeaways

  • Metric Shift: Operators must monitor specific composition parameters, such as clinker or nitrogen content, to satisfy new functional unit requirements.

  • Verification Pressure: Mandatory site visits by accredited verifiers are required in the first year to validate actual values used in emissions reports.

  • Actual Data Incentives: Providing verified actual data remains the only reliable way to potentially lower CBAM certificate financial liability compared to default values.

  • Document Governance: The Monitoring Plan is now a formal requirement and serves as the baseline for all annual reporting and verification activities.

The Weekly EUA Snapshot

The European Union Allowance (EUA) market continues to dictate the baseline for CBAM certificate pricing as we navigate the second quarter of 2026.

Today's Price: €72.50

Key Price Pillars: Stability is currently supported by the quarterly averaging methodology for CBAM certificates applied to 2026 imports.

The One-Sentence Bottom Line: Expect the market to remain range-bound between €70 and €75 as industrial participants finalize their compliance data for the first quarter.

Please be advised that all predicted values are an internal estimation based on the statements of globally trusted sources. Dubrink will not be held liable for mispredictions or unexpected shifts in the market.