Default values relating to the impending definitive stage of the Carbon Border Adjustment Mechanism (CBAM) were approved by the European Commission’s CBAM committee in the week beginning 8 December, with a draft act on default values detailing the principles behind recent revisions.
McCloskey exclusively and extensively covered the latest values in an article coinciding with the affirmative vote.
The draft implementing regulation “laying down rules […] as regards the establishment of default values” details the principles and processes behind these revisions, giving some clarity to what some industry participants characterize as “illogical” or “unrepresentative” data.
McCloskey previously outlined that the default values – speculated by market participants as due to insufficient emissions data collected during CBAM’s transitional stage – were based on a model from the EU’s Joint Research Centre (JRC), pulling from public datasets like those of the International Energy Agency (IEA), and industry associations in creating the now-revised and approved default values.
In reality, the CBAM regulation always intended to base the default values on publicly available data, as described in Annex IV:
“Default values shall be determined based on the best available data. Best available data shall be based on reliable and publicly available information”
As detailed in McCloskey’s aforementioned article, the originally circulated default values were almost unanimously criticised by steel market participants across the value chain, leading the Commission to update the dataset on the basis of what transitional stage data was available in the CBAM registry.
While there has been extensive debate on the default values for specific product categories and origins, the positions of the steel value chain in Europe can be relatively neatly summarised as ‘steelmakers thought they were too low,’ particularly for China, and ‘importers thought they were too high’ especially as relates to recently disruptive origins like Indonesia.
The review process seemed to favour the steelmaker position, as where more than 30 transitional stage data points could be consolidated for a product category origin, the value at the 90th percentile of the range was adopted as a new default value – where said value was higher than the JRC’s original default value, and the respective import market share exceeded 3%.
The draft implementing act on default values explains further – and is understood by McCloskey to have been approved via comitology in its current form – as to the principles dictating their formation.
The default values are subject to a phased-in mark-up of 10% in 2026; 20% in 2027; and 30% in 2028, which according to the draft act is “[t]o avoid immediate disproportionate impacts on prices of goods, and to give economic operators time to adapt.”
The Commission alludes to capacity issues with verifiers, stating “[t]his phase-in, is also necessary as the number of verifiers may increase in the first years following the end of the transition period, in particular in 2026,” and seems to anticipate heavy use of default values in the “first years” of the definitive stage:
“CBAM declarants should therefore be able to use default values in those first years, and rely on actual emissions subsequently.”
Also in the draft act is a new anti-circumvention provision relating to precursors where the country of production is not known – most relevant to mixed methodology CBAM declarations referencing a combination of actual and default values – intended to deter “operators that use a precursor produced in a third country for which a high default has been set from claiming that the country of production of a precursor is unknown in order to avoid being subject to that high default value.”
These default values for precursors of unknown origin are said at the default value of the origin with the “highest emission intensities for that precursor.”
Additionally, the draft act clarifies the Commission’s intended timeline for reviewing the default values and mark-ups as “December 2027 at the latest.”
The draft implementing act on default values states: “[t]he Commission should make all necessary efforts, in close collaboration with the Member States and based on a systematic and holistic review, to ensure that a revision of the default values can already be carried out in 2026.”
The JRC is currently conducting another two year study into global industrial emissions, which is scheduled to complete in June 2026. McCloskey’s sources are generally pessimistic about the likelihood of a revision of the default values in 2026, despite the Commission’s best efforts, and seem resigned to a culture of uncertainty in the EU steel markets for the foreseeable future.
While steel industry sources close to the drafting and approval process for the CBAM default values understand that the data has been approved in its latest form, McCloskey’s review of the acts and annexes reveals some discrepancies, as Thailand and Vietnam are missing CN code listings for stainless steel products, North Macedonia lacks a production route classification, and not all origins have iron and steel listings at all – though the unanimous availability of iron and steel default values across origins has never explicitly been suggested as intended, and relevant origins would instead reference fallback data for “Other Countries and Territories.”
