The deduction follows the product benchmark, not the supplier's emissions, so every tonne above the benchmark is paid at the full certificate price from 2026.
The CBAM free allocation adjustment deducts, for each tonne of goods, the free allocation an EU producer of the same goods still receives: the product benchmark times the share of free allocation retained that year, 97.5 per cent in 2026. Certificates owed are embedded emissions minus that deduction. For an illustrative steel product with a benchmark of 1.37 tCO2e a tonne, a supplier at 1.90 owes 1.90 − 1.37 × 97.5% = 0.56425 certificates a tonne, 42.32 euros at 75 euros, not the 3.56 euros the common shortcut of 2.5 per cent of embedded emissions gives.
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 →
CBAM is built to charge an importer what an EU producer of the same goods pays under the EU ETS. That producer receives free allowances up to a benchmark, the emissions of the most efficient installations, scaled down each year as free allocation is phased out, and pays the full carbon price on everything it emits above that. The import side mirrors it: the deduction is fixed by the benchmark, not by the supplier's own emissions.
The shortcut, embedded emissions times the phase-in percentage, assumes the supplier sits exactly on the benchmark. The book's worked example uses it, and so does the cost per tonne of steel from 2026 to 2034, which flags the same point: above the benchmark the obligation is higher. Most imported steel is above it, because benchmarks are set at the efficient end of EU production.
| Input | Value |
|---|---|
| Imports a year | 10,000 t |
| Benchmark for the product, tCO2e a tonne (illustrative) | 1.37 |
| Share of free allocation retained, 2026 | 97.5% |
| Certificate price, euros (illustrative) | 75.00 |
| Embedded emissions: supplier A, B, C, tCO2e a tonne | 1.50; 1.90; 2.30 |
The benchmark here is illustrative. The Commission sets the values by product and, where relevant, by production route in implementing acts; look up the value for your CN code before budgeting. The case also leaves out any carbon price paid in the country of origin.
1. Free allocation adjustment per tonne = benchmark × share retained = 1.37 × 97.5% = 1.33575
2. Certificates per tonne = embedded emissions − adjustment = 1.90 − 1.33575 = 0.56425
3. For the year: 0.56425 × 10,000 t = 5,642.5 certificates; gross embedded emissions are 19,000 t and the adjustment removes 13,358
4. Cost = 5,642.5 × 75 = 423,187 euros, or 42.32 euros a tonne of steel
Excel: =Qty*(EE-Benchmark*Retained)*Price
The obligation splits into two pieces with very different prices. The 0.53 tonnes above the benchmark are paid in full, 39.75 euros. The 1.37 tonnes up to the benchmark are paid only on the phased-in 2.5 per cent, 0.03425 tonnes or 2.57 euros. In 2026, 93.9 per cent of supplier B's certificates are the excess.
| Supplier | EE, t/t | Above benchmark | Certificates a tonne | Euros a tonne | Euros a year | Shortcut, euros a tonne |
|---|---|---|---|---|---|---|
| A | 1.50 | 0.13 | 0.16425 | 12.32 | 123,188 | 2.81 |
| B | 1.90 | 0.53 | 0.56425 | 42.32 | 423,187 | 3.56 |
| C | 2.30 | 0.93 | 0.96425 | 72.32 | 723,187 | 4.31 |
Under the shortcut the three suppliers are 1.50 euros a tonne apart and the choice between them hardly matters in 2026. Under the adjustment they are 60.00 euros a tonne apart from the first year: every tonne of CO2e above the benchmark costs the full 75 euros, whatever the year. The phase-in shelters only the emissions an efficient EU producer would also have.
| Year | Retained | Certificates a tonne | Euros a tonne | Shortcut | Gap |
|---|---|---|---|---|---|
| 2026 | 97.5% | 0.5642 | 42.32 | 3.56 | 38.76 |
| 2027 | 95.0% | 0.5985 | 44.89 | 7.13 | 37.76 |
| 2028 | 90.0% | 0.6670 | 50.02 | 14.25 | 35.77 |
| 2029 | 77.5% | 0.8382 | 62.87 | 32.06 | 30.81 |
| 2030 | 51.5% | 1.1944 | 89.58 | 69.11 | 20.47 |
| 2032 | 26.5% | 1.5369 | 115.27 | 104.74 | 10.53 |
| 2034 | 0.0% | 1.9000 | 142.50 | 142.50 | 0.00 |
The two lines meet in 2034, when free allocation ends and both charge the full embedded emissions. Before that the shortcut understates every year, most in the early ones. Over the nine years supplier B costs 7,779,975 euros on these volumes against 5,828,250 by the shortcut: 1,951,725 euros the budget would have missed.
The benchmark matters as much as the supplier. Supplier B at a benchmark of 1.20 costs 54.75 euros a tonne in 2026; at 1.60 it costs 25.50. Before signing a supply contract, find out which benchmark and production route your CN code falls under.
The book's cash profile, the quarterly holding requirement and the 2026 to 2034 phase-in are in the free workbook for this case.
Only for a supplier sitting exactly on the product benchmark. The deduction is benchmark times the share of free allocation retained, so emissions above the benchmark are paid in full. With an illustrative benchmark of 1.37, a supplier at 1.90 tCO2e a tonne owes 0.56425 certificates a tonne in 2026, not 1.90 times 2.5 per cent, 0.0475.
The full certificate price on the difference, as long as both suppliers are above the benchmark. At an illustrative 75 euros, a supplier at 1.50 tCO2e a tonne against one at 2.30 saves 0.8 tonnes, 60.00 euros a tonne of steel, already in 2026, not 2.5 per cent of it.
In 2034, when free allocation under the EU ETS reaches zero for CBAM goods. The share retained falls from 97.5 per cent in 2026 to 51.5 per cent in 2030 and 0 in 2034. For an illustrative supplier at 1.90 tCO2e a tonne and a 1.37 benchmark, the cost rises from 42.32 euros a tonne to 142.50 at 75 euros.
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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