How the Article 26 penalty is calculated, why it comes on top of the certificates, and why an under-declaration is costly from the first year.
The CBAM penalty is charged per certificate not surrendered by the deadline, at the level of the EU ETS excess emissions penalty, and it comes on top of the obligation: the missing certificates must still be bought and surrendered. At an illustrative certificate price of €75 and an indexed penalty of €125, each missing certificate costs €200, 2.67 times its price. An importer 50 certificates short on a 500 certificate obligation pays €10,000 instead of €3,750.
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 →
Article 26(1) of the CBAM Regulation, (EU) 2023/956, makes an authorised declarant who fails to surrender, by the deadline, the number of certificates that corresponds to the embedded emissions of its imports liable for a penalty for each certificate not surrendered. The amount is aligned with the excess emissions penalty of the EU emissions trading system: €100 per tonne under Article 16(3) of Directive 2003/87/EC, increased in line with the European index of consumer prices, at the level applicable in the year of importation. The indexed figure moves each year, so it is treated here as an input. The penalty is not a substitute for the certificates: the outstanding certificates still have to be surrendered. Check the consolidated text and national rules for the exact wording and for any reductions available for minor errors.
For 2026 imports, certificates are sold from February 2027 and the surrender deadline is 30 September 2027. The number due is the embedded emissions less a free allocation adjustment. That adjustment is built from the product benchmark, the quantity of goods and the share of free allocation still granted under the EU ETS, 97.5 per cent for 2026 and nil from 2034, so the CBAM factor runs from 2.5 per cent to 100 per cent. For goods whose emissions sit exactly on the benchmark the obligation is the CBAM factor times the emissions. Emissions above the benchmark are owed in full from the first year, and that is what decides the cost of a wrong number.
| Input | Value |
|---|---|
| Embedded emissions declared | 20,000 t CO2e |
| CBAM factor, 2026 | 2.5% |
| Free allocation adjustment (emissions declared on the benchmark, 97.5% retained) | 19,500 |
| Certificates due | 500 |
| Certificates held at 30 September 2027 | 450 |
| Certificate price | €75 |
| Penalty per certificate (indexed, illustrative) | €125 |
| Embedded emissions found on verification | 23,000 t CO2e |
The €125 penalty corresponds to 25 per cent of indexation on the €100 base. Replace it with the published figure for the relevant year; the method does not change.
Certificates short = certificates due − certificates surrendered = 500 − 450 = 50
Penalty = certificates short × penalty per certificate = 50 × €125 = €6,250
Certificates still to buy = 50 × €75 = €3,750
Total cost of the shortfall = €6,250 + €3,750 = €10,000
Excel: =(Due-Surrendered)*(Penalty+Price)
Had the 50 certificates been surrendered on time they would have cost €3,750. The shortfall therefore costs 2.67 times that, and the €6,250 of penalty is 16.7 per cent of the €37,500 cost of the whole year's obligation. That is the arithmetic case for treating the deadline as a treasury date with an owner, and for the buffer analysed in what a CBAM certificate buffer costs to hold.
The more expensive route to a penalty is not a missed deadline but a wrong number. Suppose verification of the supplier's data shows the same goods embedded 23,000 tonnes, not 20,000: a gap of 3,000 tonnes, 15 per cent of the declaration. The free allocation adjustment does not move, because it depends on the benchmark and the tonnes of goods, not on the emissions declared. The whole gap therefore lands on the obligation.
Correct obligation = 23,000 − 19,500 = 3,500 certificates; surrendered 500
Certificates short = 3,500 − 500 = 3,000, one per tonne under-declared
Penalty = 3,000 × €125 = €375,000; certificates = 3,000 × €75 = €225,000; total = €600,000
The intuitive shortcut, applying the 2.5 per cent factor to the error, gives 75 certificates and €15,000: forty times too little. The declarant is exposed to the per-certificate penalty on the full shortfall and must still surrender the certificates, already on 2026 imports.
| Import year | CBAM factor | Obligation as declared | Correct obligation | Certificates short | Shortcut (€) | Actual cost (€) |
|---|---|---|---|---|---|---|
| 2026 | 2.5% | 500 | 3,500 | 3,000 | 15,000 | 600,000 |
| 2028 | 10.0% | 2,000 | 5,000 | 3,000 | 60,000 | 600,000 |
| 2030 | 48.5% | 9,700 | 12,700 | 3,000 | 291,000 | 600,000 |
| 2032 | 73.5% | 14,700 | 17,700 | 3,000 | 441,000 | 600,000 |
| 2034 | 100.0% | 20,000 | 23,000 | 3,000 | 600,000 | 600,000 |
The phase-in raises the obligation as declared, but not the cost of the error: 3,000 tonnes above the benchmark cost €600,000 in every year. A data quality problem tolerated in 2026 on the belief that 2.5 per cent keeps it small is already at full size. Only the shortcut grows forty times between 2026 and 2034, which is why a budget built on it looks harmless in the first year.
| Certificate price | Penalty €100 | Penalty €125 | Penalty €150 |
|---|---|---|---|
| €60 | 160 (2.67x) | 185 (3.08x) | 210 (3.50x) |
| €75 | 175 (2.33x) | 200 (2.67x) | 225 (3.00x) |
| €90 | 190 (2.11x) | 215 (2.39x) | 240 (2.67x) |
Because the penalty is fixed in euros while the certificate price floats with the ETS, the multiple is highest when carbon is cheap. At a low certificate price, a missed certificate costs well over three times what it would have cost to buy.
Each certificate not surrendered costs the penalty plus the certificate, 2.67 times the price at the illustrative levels used here. The deadline risk is a calendar problem and is cheap to remove. The under-declaration risk does not wait for the phase-in: every tonne above the benchmark is a full certificate from 2026, so supplier data has to be right from the first declaration. The cost and cash calendar behind these figures is in the free workbook for the book, and the price per certificate is worked in how the CBAM certificate price is calculated.
No. The penalty comes on top of the obligation: the outstanding certificates still have to be surrendered. Each missing certificate therefore costs the penalty plus the certificate: at an illustrative EUR 125 penalty and EUR 75 price, EUR 200, or 2.67 times what it would have cost to surrender on time.
It is set per certificate, at the EU ETS excess emissions penalty of EUR 100 increased with European consumer price inflation, at the level applicable in the year of importation. Because the free allocation adjustment depends on the benchmark, not on declared emissions, a tonne under-declared above the benchmark is a full certificate even in 2026: 3,000 tonnes cost EUR 600,000 at EUR 75 and EUR 125, not EUR 15,000.
Certificates for 2026 imports must be surrendered by 30 September 2027, with sales opening in February 2027. In the worked case a declarant holding 450 of the 500 certificates due at that date is 50 short, which costs EUR 6,250 of penalty on top of EUR 3,750 of certificates.
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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