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The European Commission has published draft implementing legislation. It sets out how the Carbon Border Adjustment Mechanism (CBAM) will recognize carbon prices paid outside the EU. Specifically, the text explains how importers can claim a reduction in CBAM certificates at European borders to account for prices paid in third countries.
aims to prevent importers paying twice for the same emissions. At the same time, it maintains equivalence with pricing under the EU Emissions Trading System (ETS). It also clarifies the treatment of foreign carbon taxes, ETSs and carbon credit-based compliance options.
In addition, the draft sets out detailed rules on evidence, verification and limits on the use of international carbon credits.
Rather than naming individual carbon pricing systems, the draft lays out broad qualifying criteria. These include systems that allow domestic carbon credits, plus up to 10% use of international Article 6 credits.
Public feedback runs for four weeks until June 10. Once finalized, the CBAM carbon price regulations will apply retrospectively to imports of CBAM goods from January 1, 2026, aligning with the start of the CBAM implementation phase.
Under the proposal, authorized CBAM declarants will be able to claim a reduction in CBAM certificates corresponding to the carbon price effectively paid in a third country for the embedded emissions of imported goods.
However, this option applies only in specific cases. The foreign price must come from a binding carbon price mechanism, such as a tax, levy or fee, or from an ETS that imposes compliance obligations on covered installations. In addition, the calculation excludes prices paid for emissions unrelated to the good’s embedded emissions.
According to the Commission, the rules draw on experience from the CBAM transitional period between October 2023 and December 2025. During that time, importers reported carbon prices paid on embedded emissions in third countries. The Commission also incorporated feedback from third-country authorities operating these systems.
The draft also clarifies the difference between actual carbon prices and Commission-determined default values.
Where importers calculate embedded emissions using actual values: Deduction claims can be made using either the Commission-determined default carbon prices, or the actual CBAM carbon price paid in the third country where such payments are supported by certified evidence.
Where importers report emissions using default emissions values: The deduction can only be based on default carbon prices for the relevant third country. The Commission has yet to publish any default values for different countries but said these would be calculated as yearly values.
Importers can also use default carbon prices for indirect emissions and for precursors produced outside the installation. This applies where certified data is unavailable, which reduces administrative burdens for both EU importers and third-country operators.
To ensure proportionality, the draft permits a deviation of up to 5% between the emissions covered by a third-country carbon price mechanism and those covered under CBAM. This recognizes that some foreign systems apply different system boundaries or may cover additional greenhouse gases.
The proposed regulation sets a clear requirement for any claim for a reduction in obligated CBAM certificate surrender. Specifically, the carbon price paid in a third country must come from a binding mechanism. Moreover, this mechanism must impose compliance obligations on all operators in the sector, without discrimination.
The draft explicitly allows the recognition of carbon prices paid using carbon credits, where the third-country mechanism permits such credits.
Domestic credits qualify for recognition without additional qualitative or quantitative constraints. For international Article 6 credits, the draft recognizes only internationally transferred mitigation outcomes (ITMOs) that carry authorization under Article 6.2 or Article 6.4 of the Paris Agreement. The draft caps their use at 10% of the reported and confirmed emissions at the installation. Any international credits beyond this threshold carry a zero carbon price for CBAM purposes.
Where international Article 6 credits are used, their recognition is conditional on strict eligibility and transparency requirements. Importers must provide evidence that the mitigation approach has been registered on the Centralized Accounting & Reporting Platform (CARP) registry of the United Nations Framework Convention on Climate Change (UNFCCC) and that credits have achieved “first transfer” conditions as per the authorization for corresponding adjustment from the host country.
Evidence should also be provided to show there are no significant outstanding inconsistencies identified by the technical expert review (TER) report for the initial report pertaining to the relevant mitigation approaches.
The Commission said this limit is intended to safeguard environmental integrity, encourage domestic decarbonization in third countries, and support the development of high-quality Article 6 credits.
The inclusion of Article 6 credits in the draft implementing act comes just one month after a draft report from the EU Parliament’s Committee on the Environment, Climate & Food Safety (ENVI), which proposed deleting all references to Article 6 credits in the legislative text on the EU’s proposed CBAM downstream extension. ENVI termed the inclusion of Article 6 carbon credits under CBAM for accounting of costs paid abroad as “premature and counterproductive.”
This draft implementing legislation from the Commission does not need to pass through Parliament or Council to come into effect. It points to a more tempered approach toward Article 6 credits, with specific quality parameters and strict limits potentially boosting demand for such credits in coming years.
The potential recognition of Article 6 credits could shift how companies engage with third-country carbon taxes. Typically, covered firms use credits when their price sits below the carbon tax rate. This creates a saving on domestic costs. But CBAM-exporting firms face a trade-off. A lower domestic carbon price triggers a larger CBAM bill at the EU border.
The proposed regulation requires that any rebates or compensation reducing the effective carbon price paid be taken into account when calculating the CBAM deduction. This includes free allowances, tax exemptions and refunds, as well as indirect cost compensation related to electricity pricing.
In contrast, the draft excludes certain carbon-pricing revenues from the compensation calculation. These are revenues that jurisdictions recycle into decarbonization support for installations. Three conditions apply. Governments must grant such support transparently, open it to all covered operators, and target it explicitly at emissions reduction. This mirrors how the EU treats ETS revenues. It also protects jurisdictions that reinvest carbon pricing proceeds domestically from penalization.
To claim a reduction, third-country operators must prepare a carbon price report. The report must detail how each good’s CBAM carbon price was calculated and paid. An accredited independent person must certify it. The same verifier can attest for both embedded emissions and the carbon price report.
Certification will cover four areas:
Evidence requirements depend on the mechanism. These may include auction price data, registry records of surrendered allowances, tax authority documentation, or records of carbon credit purchases. The accredited individual may also need to conduct site visits. This applies where remote access to data is insufficient or where misstatement risks are high.
Given the intricacy and novelty of CBAM certification, the Commission proposes a 5% materiality threshold. This threshold applies to misstatements in reported carbon prices attributed to CBAM goods.
Earlier, some market participants raised concerns. Their questions covered the readiness of national accreditation bodies, verifier availability, and the impact on verification timelines.
The Fastmarkets CBAM Intelligence Suite provides the cost modelling, EU ETS price scenarios, country-specific CN code benchmarks and facility-level data needed to assess how the Commission’s draft rules translate into real CBAM exposure. This includes the impact of the 10% Article 6 credit cap and the choice between actual and default carbon price routes. To model your own CBAM exposure by product, country and route, contact our carbon team at cbamcarbon.queries@fastmarkets.com.
The Fastmarkets CBAM Cost Calculator gives you the number behind each one — by product, supplier and route