Draft on the third-country carbon price deduction: A clear formula with many conditions

The Commission tables its deduction draft

On 13 May 2026, the European Commission published its draft Implementing Regulation on the conversion of the carbon price paid in a third country into a corresponding reduction in the number of CBAM certificates to be surrendered. The legal basis is Article 9(5) of the CBAM Regulation (EU) 2023/956. The public consultation runs until 10 June 2026. Another substantial piece of the CBAM implementing package is now on the table, and it bears on the question that affects importers' cost calculations most directly.

The deduction nets costs, not emissions

Article 6 calculates the reduction in CBAM certificates as a ratio of two monetary amounts. The numerator is the effective carbon price per tonne of good. The denominator is a reference price published by the European Commission, namely the yearly average of CBAM certificate prices. The result is then multiplied by the relevant import quantity. The deduction therefore operates at the cost level. A worked example makes this tangible. A supplier paying an effective carbon price of EUR 20 per tonne of good in a third country, set against a reference price of EUR 80 per tonne of CO₂e, generates a reduction of 0.25 certificates per tonne of good. The emission intensity of the good plays no role in this calculation. A supplier with a low net price delivers proportionally small reductions, even where its emissions are substantial. Nominal carbon prices in third-country mechanisms therefore systematically overstate the deduction that can actually be claimed.

Four deductions, one exception

Article 8(1) lists four types of compensation that must be subtracted from the eligible carbon price. These include reduced tax rates and exemptions from the scope of coverage, such as free allowances or emissions below a baseline. They also cover monetary refunds, including indirect cost compensation, and a catch-all category for any other form of relief. What counts is the net price after all deductions. Article 8(2) creates an exception. Subsidies financed from carbon price revenues and reinvested in the decarbonisation of the installation do not count as compensation. The conditions are that all installations are eligible to apply, that the granting decision is public, and that the explicit purpose is to reduce emissions. This construction favours countries that productively reinvest their revenues over those that channel them back through opaque tax cuts.

Carbon credits: Two regimes, one cap

The 10% cap on Article 6 credits applies exclusively to cross-border transferred credits. Specifically, it covers Internationally Transferred Mitigation Outcomes (ITMOs) under Article 6.2 or Emission Reductions under Article 6.4 of the Paris Agreement. Three conditions must be met. The credits must be registered on the UNFCCC's Centralized Accounting and Reporting Platform (CARP), the corresponding technical expert review report must be free of significant inconsistencies, and their share must not exceed 10% of the emissions reported and confirmed under the third-country mechanism. Anything above that threshold is assigned a price of zero and can therefore no longer be deducted from the CBAM liability. For domestic offset credits that an operator uses within its national compliance regime, the cap does not apply. Recital 12 makes clear that neither qualitative nor quantitative additional criteria apply, provided the credits are used in accordance with the official carbon pricing system. Chinese CCER credits in the Chinese emissions trading system, or domestic offset credits under Singapore's carbon tax, therefore fall outside the 10% cap. Purchases of voluntary carbon credits made entirely outside a regulatory framework are excluded altogether.

Two 5% rules, one strict and one generous

The draft contains two separate 5% thresholds that operate very differently in practice. Article 16 sets the materiality level for certification at 5% of the effective carbon price per tonne and per CN code. This threshold is tight. It forces clean attribution of price data at product level. An importer that aggregates suppliers under a single CN code without breaking the deduction down by source loses the deduction entirely. The second 5% rule sits in Recital 7 and Annex I, Section 4.2. Here, differences of up to 5% between the coverage of the third-country carbon price mechanism and that of CBAM are tolerated. This applies where a third-country mechanism covers additional greenhouse gases or further emission sources that CBAM does not cover or covers differently. The tolerance prevents reliable price evidence from being rejected over minor reconciliation gaps in emissions monitoring.

Fuel taxes, precursors and multiple mechanisms per installation

Fuel-based carbon taxes are explicitly recognised. Annex I, Section 3.3.3 covers Sweden's CO₂ tax, Norway's CO₂ levy and Canada's Federal Fuel Charge. They count even where the operator does not pay the tax directly, provided the tax rate aligns with the emission factor of the fuel. Carbon prices paid at upstream installations can also be claimed. Article 4 and Annex I, Section 6.2 allow a producer of complex goods to include the price paid by an upstream supplier. The condition is a certified carbon price report from the upstream installation. Alternatively, the Commission's default price is available. For the steel industry this matters, because mills that process priced pellets can claim two layers of recognition. The approach closely mirrors the methodology used for emission data across complex supply chains. Article 3(4) also allows the aggregation of several carbon price mechanisms within a single installation. A British operator trading in the UK ETS and also paying the Carbon Price Support can bundle both instruments. The same applies to a Chinese installation operating under the national emissions trading system and a regional pilot scheme. Parallel instruments at one installation can therefore be combined for full recognition. This creates effective parity in treatment.

Operational requirements with retroactive effect

The draft contains three operational requirements that affect importers directly. Article 7(3) prescribes that the operator's carbon price report be drafted in English. The certification report by the independent person follows the same rule under Article 17(9). Suppliers in Türkiye, China, Korea or Brazil need to plan for the effort of producing English-language reports. For the conversion into euro, Article 5 sets the yearly average exchange rate. The basis is the rates published by the European Central Bank or, where appropriate, by Eurostat. Daily or monthly averages, as requested in particular from the electricity sector, are not foreseen. Article 32 provides for retroactive application from 1 January 2026. All imports during the current calendar year fall under the deduction rules once the draft is adopted. The first CBAM declaration covering these imports is due in May 2027. Importers should already start to systematically collect the necessary evidence for 2026. In most cases this will work in favour of the cost calculations they have already prepared.

What this means for the procurement of CBAM goods

For buyers, the draft shifts the lever for reducing carbon costs from the supplier's country to the supplier's installation. What matters is the net price actually paid at the specific installation, reported at product level by CN code and certified by an independent person. The nominal carbon price in the third country says little about that. Suppliers that report only default emission values fall back automatically on the default carbon price. Installations with verified emission data in countries with recognised carbon pricing systems therefore offer the largest deduction potential. These include the British, Chinese, Korean and New Zealand emissions trading systems as well as Sweden's CO₂ tax. Suppliers in countries without a mandatory pricing system remain limited to the default value. Contracts should fix the delivery date of the certified emissions and carbon price reports as well as the full disclosure of all compensation per CN code. This includes free allowances, indirect cost compensation, refunds and other forms of relief. An importer that builds this data structure now will later be in a position to claim the full deduction for the 2026 import year.

Outlook

The public consultation runs until 10 June 2026. Adoption is expected in late summer or autumn. In parallel, the Commission will publish the yearly default carbon prices and the reference price of CBAM certificates for 2026 in separate legal acts. Importers should use the consultation period to bring forward positions on the 10% cap or on the yearly exchange rate. In parallel, the collection of emissions and carbon price evidence for the 2026 import year begins now.

Support

If you would like to understand how the deduction of the third-country carbon price will affect your CBAM cost calculations, what evidence you should request from your suppliers, or how the two-track logic of actual values and default values will reshape your procurement strategy, please write to me at helge@kolum.earth.