The European Commission is preparing to set provisional carbon emissions intensity benchmarks for iron and steel products under the Carbon Border Adjustment Mechanism (CBAM), according to a draft seen by Fastmarkets on Monday November 17.
The draft annex, circulated informally among industry stakeholders, outlines how “specific embedded free allocations” (SEFA) and “free allocation adjustments” (FAA) will be calculated once CBAM enters its full phase as of January 1 2026.
It provides the first detailed look at the benchmark emission factors that will determine the number of CBAM certificates importers must surrender and how those benchmarks align with existing EU Emissions Trading System (ETS) parameters.
For steel, the document sets three provisional benchmark values by production route — differentiating between blast furnace/basic oxygen furnace (BF/BOF), direct reduced iron/electric-arc furnace (DRI/EAF) and scrap-based EAF technologies.
These provisional benchmarks will underpin the FAA mechanism, effectively linking CBAM obligations to the phase-out of free allowances under the ETS. As free allocation amounts decline, importers of carbon-intensive steel will need to purchase more CBAM certificates to cover embedded emissions, calculated using the applicable benchmark.
While still marked “provisional,” the leaked document offers the clearest signal yet of how Brussels intends to operationalize CBAM’s FAA. The benchmarks are expected to be finalized in 2026, with phased updates for some products.
CBAM impact for flat steel
Under the draft CBAM free allocation annex, seen by Fastmarkets, steel hot-rolled coil carries benchmark values of 1.530 tCO2 per tonne for BF/BOF production, 1.033 tCO2 per tonne for DRI/EAF and 0.288 tCO2 per tonne for scrap-based EAF routes.
Based on these figures and a carbon permit price of around €80-90 ($92-104) per tonne of CO2, Fastmarkets estimates that CBAM-linked costs for imported HRC will range roughly between €40 and €120 per tonne of steel, depending on the production route, country of origin and any carbon costs already paid under domestic emissions schemes. For EAF-scrap-based steel, however, CBAM costs might be below €40 per tonne of steel, industry sources said.
For cold-rolled coil and hot-dipped galvanized coil, the draft shows slightly higher benchmark values [see table].
Sources told Fastmarkets that such benchmarks are “manageable” so far, considering the price gap between imports and domestic steel.
“Some suppliers in Asia offer HRC to Europe at prices over €100 per tonne below European,” a buyer in Italy said.
“These benchmarks can still be digested by the market,” a seller in Europe said.
Fastmarkets’ daily steel hot-rolled coil index domestic, exw Northern Europe was €612.92 per tonne on Friday November 14, up by €0.59 per tonne from €612.33 per tonne on Thursday November 13.
In contrast, Fastmarkets’ weekly price assessment for steel hot-rolled coil import, cfr main port Northern Europe was €480-520 per tonne on Wednesday November 12, widening downward from €485-520 per tonne the previous week.
Industry sources told Fastmarkets that the benchmark spread — more than 1.2 tonnes of CO2 per tonne of steel between BF/BOF and scrap-based routes — could sharply affect import competitiveness once the CBAM cost is fully priced at EU ETS levels.
“This reinforces the premium on low-carbon routes like EAF,” a steel trader in Germany said. “For producers relying on coal-based BF ironmaking, the adjustment could be brutal,” they added.
European steel buyers told Fastmarkets that uncertainty over benchmark levels and default-value publication has slowed trading activity for 2026 import deliveries. Several importers said they were unwilling to commit to import cargoes without knowing the precise CBAM component.
“Every tonne of steel entering the EU will carry a carbon cost — and Brussels is deciding what ‘best performance’ really means,” a buyer in Italy said. “But the market can’t stop and wait for the precise decision — so we keep operating in [a] very untransparent environment, unable to define the final price of the import cargo because the Commission didn’t provide timely instruments for that,” they added.
Different calculation routes
The draft regulation distinguishes between actual-data and default-value methods for determining each product’s SEFA.
Under the actual-data approach, operators must calculate benchmarks using the emissions intensity of each precursor material and the quantity of that precursor used in production — a process designed to capture site-specific performance.
The draft also confirms that recursive calculations will apply to complex goods, meaning precursor materials such as pig iron, crude steel and ferro-alloys are included in the total embedded emissions of the final product.
In CBAM terminology, a precursor is any input material (or intermediate product) that is used to produce another good — and that itself has a benchmark value for its embedded emissions.
For example, for HDG coil, there are several precursors required:
Cold-rolled coil — precursor to galvanized coil
Hot-rolled coil — precursor to CRC
Hot metal or pig iron — precursor to HRC
Coke, sinter, pellets — precursors to hot metal
Each of those stages has its own benchmark.
So, if a producer reports actual data, they would calculate the SEFA for galvanized coil by multiplying the benchmark value of each precursor by the amount of that precursor used — then adding the emissions from any additional on-site processing (like galvanizing).
By contrast, users of default values apply standardized Commission benchmarks directly, simplifying reporting but offering less precision and likely paying higher CBAM certificate costs, since default values will generally be set above verified emissions levels.
If a non-EU producer cannot provide verified emission data, the CBAM regulation allows using default emission factors, published by the European Commission — based on benchmark values or worst-case averages.
Default values pending
Default values represent average embedded-emission intensities for each product and production route. They apply whenever verified actual data are unavailable, allowing importers to complete CBAM declarations even without detailed upstream information.
According to industry sources, the final set of default values will be published in early 2026, together with the final ETS benchmarks. Until then, market participants face uncertainty over the exact emission factors that will determine CBAM certificate obligations and import competitiveness.
A source familiar with the matter told Fastmarkets that finalized default values and benchmarks will likely be published only in March/April 2026.
Shyamal Patel in London contributed to this story
