Electricity is the CBAM good that pays in full from the first year. There is no free allocation to phase out, so the deduction that shrinks a steel bill in 2026 does not apply.
CBAM certificates for imported electricity are the MWh imported multiplied by the emission factor, the Commission's default factor for the exporting country unless the strict conditions for actual values are met, with no free allocation adjustment, because EU power stations receive no free allowances. An illustrative 200,000 MWh at 0.80 tCO2 per MWh need 160,000 certificates for 2026, 12,504,192 euros or 62.52 per MWh at the quarterly prices. Apply the 2.5 per cent shortcut often used for steel and the budget shows 4,000.
Worked in full in The CBAM Compliance Handbook by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
A fictional trader imports power across an interconnector from a non-EU country into an EU bidding zone in 2026. The emission factor and volumes are illustrative; the factor for a real flow is the one in the Commission's table of default values for the exporting country, or the region, which you should read from the current publication.
| Quarter | MWh imported | Default factor, tCO2/MWh | Certificates | Price, EUR | Cost, EUR |
|---|---|---|---|---|---|
| Q1 | 60,000 | 0.80 | 48,000 | 75.36 | 3,617,280 |
| Q2 | 40,000 | 0.80 | 32,000 | 75.28 | 2,408,960 |
| Q3 | 42,000 | 0.80 | 33,600 | 82.32 | 2,765,952 |
| Q4 | 58,000 | 0.80 | 46,400 | 80.00 | 3,712,000 |
| 2026 | 200,000 | 160,000 | 78.15 | 12,504,192 |
The first three quarterly prices are those published by the Commission for 2026; the fourth is an illustrative 80.00 until its publication in January 2027. Check each against the official figure before booking it.
Embedded emissions = MWh imported × emission factor = 200,000 × 0.80 = 160,000 tCO2
For electricity there are no precursors and no indirect emissions to add: the good is the power, and its embedded emissions are those of generating it. The default factor reflects the generation mix of the exporting country, not the particular plant, which is why it is high for a coal-heavy system whatever the trader actually bought.
Certificates = embedded emissions − free allocation adjustment = 160,000 − 0 = 160,000
Cost = Σ certificatesq × priceq = 12,504,192 euros; per MWh = 62.52
Excel: =SUMPRODUCT(MWh*Factor,QuarterPrice)
This is the step that sets electricity apart. The free allocation adjustment exists so that an importer is charged only what an EU producer of the same good pays, and EU steel, aluminium, cement, fertiliser and hydrogen producers still receive free allowances during the phase-in. As a rule, EU power stations have received no free allowances since 2013 and buy every one they surrender. So there is nothing to deduct: electricity pays on 100 per cent of its embedded emissions from the first year of CBAM.
| Good | Embedded tCO2e | Certificates | Share charged |
|---|---|---|---|
| Steel, 8,000 t at 1.8, on the 2.5% shortcut | 14,400 | 360 | 2.5% |
| Electricity, 200,000 MWh at 0.80 | 160,000 | 160,000 | 100% |
The steel line uses the shortcut of the book's worked example. Under the benchmark rule a steel supplier above the benchmark owes more than 2.5 per cent, as the free allocation adjustment shows, but most of its emissions are still deducted. Electricity has no benchmark deduction at all.
At 62.52 per MWh against an illustrative wholesale price of 90.00, the certificate cost is 69.5 per cent of the value of the power. An import whose price spread between the exporting market and the EU is smaller than the CBAM cost, 64.00 per MWh at an 80.00 certificate, loses money on every MWh.
| Factor, tCO2/MWh | Price 60 | Price 70 | Price 80 | Price 90 |
|---|---|---|---|---|
| 0.40 | 24.00 | 28.00 | 32.00 | 36.00 |
| 0.60 | 36.00 | 42.00 | 48.00 | 54.00 |
| 0.80 | 48.00 | 56.00 | 64.00 | 72.00 |
| 1.00 | 60.00 | 70.00 | 80.00 | 90.00 |
The only lever the importer controls is the factor. Actual emissions may replace the default only under the cumulative conditions set in Annex IV of the CBAM Regulation: broadly, a power purchase agreement with a named installation for the volume, an installation directly connected to the EU grid or with no physical congestion in between, emissions below 550 g of CO2 per kWh, firmly nominated interconnection capacity, and evidence, hour by hour, that the plant generated what was imported. If 120,000 MWh, 60 per cent of the flow, came under a hydro contract at an actual 0.02 tCO2 per MWh, the certificates fall to 66,400 and the cost at 80.00 from 12,800,000 to 5,312,000: 7,488,000 saved, 62.40 on every contracted MWh.
The quarterly prices, the cash calendar for 2027 and a blank model for your own imports are in the free workbook for this book. Why steel pays only 2.5 per cent in 2026 is worked in how the CBAM free allocation adjustment is calculated, and the quarterly price itself in how the CBAM certificate price is calculated.
No. The de minimis mass threshold introduced in 2025 exempts importers of small quantities of iron, steel, aluminium, cement and fertilisers, but electricity and hydrogen are excluded from it. An importer of even a few MWh is in scope. At an illustrative 0.80 tCO2 per MWh and 80.00 euros a certificate, every MWh carries 64.00 euros.
Only under strict conditions set in the regulation's annex, broadly a power purchase agreement with a named installation emitting under 550 g of CO2 per kWh, and firmly nominated interconnection capacity for the volume. In the illustrative case, 60 per cent of the volume under a hydro contract at 0.02 tCO2 per MWh cuts the certificates from 160,000 to 66,400 and saves 7,488,000 euros at 80.00.
Because the CBAM obligation is reduced by the free allocation EU producers of the same good still receive. EU steelmakers still receive free allowances, so in 2026 a steel import deducts 97.5 per cent of its product benchmark, and on the common shortcut only 2.5 per cent of its emissions is charged. EU power generators receive none, so 100 per cent of electricity's embedded emissions are charged from the start.
This article is one calculation from The CBAM Compliance Handbook. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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