CBAM Default Values: The Carbon Tariff Nobody Priced In

Why CBAM default values can punish missing data more than high emissions

Default values become a pricing risk on 1 January 2026, not just a compliance fallback. With the definitive CBAM period, default values are formalised under Implementing Regulation (EU) 2025/2621 and sit directly inside the cost base that buyers will model and negotiate against.

Default values are designed to protect against under-reporting, not to approximate your plant’s average. That economic logic matters: CBAM shifts commercial leverage from “lower emitters pay less” to “better documented suppliers pay less”, because verified actual values can displace a punitive proxy.

Mark-ups make the default pathway more expensive every year from 2026 to 2028. Operational guidance presented for CBAM implementation indicates a mark-up applied to default values for steel, cement, aluminium, and hydrogen of +10% (2026), +20% (2027), and +30% (from 2028), while fertilisers have a much lower mark-up of around 1%. Even if your process does not change, the emissions number used for pricing can escalate automatically if you stay on defaults.

Buyers will treat default exposure like a carbon tariff and push it back into contracts. Expect more CBAM pass-through clauses, price discounts when data is missing, and requests for a verified product carbon footprint, because the authorised CBAM declarant carries the reporting and surrender obligation and will not want to warehouse uncertainty.

The transitional period already previewed this “penalty by design” dynamic. During October 2023 to December 2025 there was more flexibility to use estimates, but from Q3 2024 default values were treated within the estimation framework with limits, including a 20% cap for complex goods. The direction of travel was clear: missing data gets priced conservatively.

The most painful cases are not the dirtiest plants. They are the plants whose real route is structurally different from the default category, like scrap-based EAF steel versus BF-BOF, or efficient clinker versus a high average default, where mismatches can reach multiples.

Two real-world mismatches: Turkish cement and Thai EAF steel facing 4–7x higher embedded emissions

Turkish cement producers have publicly warned that CBAM default values risk becoming a trade barrier because the default can sit far above declared actuals. One cited example compares around 0.88 tCO₂ per tonne of clinker to a default associated with the category of 1.551 tCO₂ per tonne. That is not a marginal difference, it is a different cost regime.

Clinker amplifies the effect because it is emissions-intensive and often sold into tight-margin, bulk logistics chains. When embedded emissions move by tenths of a tonne per tonne of product, the carbon cost can move by whole currency units per tonne of clinker once multiplied by the CBAM certificate price.

Scrap-based EAF steel faces a different but equally commercial problem: it can be relatively low-carbon, but it is easy to misprice if the buyer cannot evidence the route and boundaries. If the EU buyer does not receive granular data on electricity, scrap versus DRI versus pig iron inputs, and the calculation scope for direct and indirect emissions, the shipment can be treated as a higher-emitting route via defaults or conservative benchmarks.

The “4–7x” story is plausible without stretching numbers. Industry and academic literature commonly places scrap-EAF in a much lower range than BF-BOF, with EAF outcomes depending heavily on electricity and inputs. If verified EAF embedded emissions are roughly 0.3 to 0.8 tCO₂ per tonne, and a default or route proxy lands closer to 2 to 3 tCO₂ per tonne for a given product and boundary, the multiple can quickly move from 3x to 10x. The commercial reality is that traders and service centres will price coil or billet “as if it were BF-BOF” when they cannot defend an EAF claim in an audit.

Supplier onboarding is becoming a carbon data exercise. Buyers will prefer suppliers that can provide verified actuals with an audit trail aligned to EU methodology, because it reduces both cost and the risk of later corrections.

The cost mechanics: how default factors translate into CBAM certificates, cash exposure, and margin risk

CBAM cost is a simple multiplication that becomes painful when the emissions factor is wrong. In procurement and finance terms, CBAM cost is approximately:

CBAM cost ≈ (embedded emissions tCO₂/ton) × (CBAM certificate price €/tCO₂) × (ton imported)

That liability can be reduced by a deduction for a carbon price effectively paid in the country of origin, if it is demonstrable under CBAM rules. The CBAM certificate price is linked to the EU ETS price formation via auctions, so it inherits ETS volatility.

Working capital and margin risk show up before compliance settlement. Even if surrender is annual, buyers and sellers will price forward exposure into 2026 contracts because EU ETS prices move, and fixed-price supply agreements can be hit by carbon cost swings. A practical way to manage this is sensitivity: every +€10/tCO₂ change in the ETS-linked price moves the product carbon surcharge by €10 × embedded emissions (tCO₂/t) per tonne of product.

The clinker mismatch example shows the “default-only” delta clearly. For 100,000 tonnes per year, the difference between 1.551 and 0.88 tCO₂/t is 0.671 tCO₂/t, or 67,100 tCO₂ of extra embedded emissions. Multiply that by the prevailing ETS-linked CBAM certificate price and you get the order of magnitude of avoidable cost that comes purely from being pushed onto defaults.

The 2026 to 2028 mark-up acts like an escalator on that avoidable cost. Delaying verification does not just keep you exposed, it can worsen your landed cost year-on-year even if your process stays constant.

Timing adds another layer of contract friction. Parliamentary discussion has pointed to CBAM certificate sale and settlement starting no earlier than February 2027 for 2026 imports, which pushes companies toward accruals and true-ups. That is why 2026 contracts are already being written with carbon adjustment language.

Article 6 ITMOs and CBAM: what changes if EU states allow credits to count toward CBAM payments

CBAM already allows a deduction for a carbon price effectively paid in the country of origin, but that is not the same thing as using voluntary offsets. The live policy question is narrower: if a country’s regulated carbon tax or ETS allows compliance using Article 6 ITMOs, could that change the “carbon price paid” evidence that feeds into CBAM deductions.

The distinction matters for buyers and investors. An ITMO under Article 6 is a unit authorised and accounted for under the Paris Agreement framework, while a voluntary carbon market credit is not. Only the former has a plausible path to being treated as part of a regulated carbon price, and even then it depends on how EU rules interpret “effectively paid” and what proof is required.

Documentation would be the make-or-break factor. If ITMOs are used inside a domestic compliance scheme, exporters would still need to show that the carbon price was paid, not refunded, and not double counted, with the right accounting treatment such as corresponding adjustments where applicable. Any EU tightening on anti-circumvention and integrity would likely focus on preventing “paper compliance” that does not map to real reductions.

Tokenisation becomes relevant if ITMOs become a compliance lever. The operational challenge is chain-of-custody and reconciliation: authorisation status under Article 6.2, linkage to national registries, and auditable retirement or surrender events. If those records are not robust, they will not survive CBAM scrutiny.

Where the pressure builds next: verification bottlenecks, benchmark shifts, and sourcing arbitrage

Verifier capacity is the near-term constraint that can force default use even for good performers. The bottleneck is not theoretical: the definitive period requires third-party verification under accredited bodies, and the pool of CBAM-competent verifiers in key exporting regions like Turkey, Southeast Asia, and North Africa is thin. For the 2026 reporting year, plants that start the verification process after mid-2026 risk missing the window entirely and defaulting by necessity, not by choice. The result is systemic overpayment concentrated in regions where the verification infrastructure lags behind the export exposure.

Benchmark governance will move prices as much as technology does. Implementing Regulation 2025/2620 on benchmarks and 2025/2621 on defaults are both subject to review, and the Commission has already shown willingness to adjust mark-ups sector by sector, as the fertiliser carve-out at around 1% versus 10–30% for steel and cement demonstrates. Exporters and buyers should track whether the 2026–2028 mark-up schedule holds or gets revised under political pressure, because any change directly reprices the default-versus-actual gap.

Carbon-cost arbitrage is already reshaping sourcing. When defaults penalise data-poor origins, buyers re-route purchases toward suppliers with verified actuals. The Turkish cement case is instructive: producers who verify early gain a landed-cost advantage over competitors in the same country who do not, creating a within-country split that has nothing to do with process efficiency and everything to do with documentation readiness. The same dynamic will play out in EAF steel across Southeast Asia once the 2028 downstream expansion brings vehicle parts, appliances, and machinery into scope, making the carbon intensity of steel inputs a cost line in every shipment to the EU.

Contracting is becoming more explicit about where the default risk sits. CBAM pass-through clauses, ETS-indexed adjustment mechanisms, data warranties with audit rights, and 2027 true-up provisions tied to the ex post settlement timeline are all entering standard procurement language. Suppliers who can deliver MRV plus verification will not just avoid overpaying — they will be structurally easier to buy from, and that preference will compound as scope expands.