CBAM Embedded Emissions Explained: Direct, Indirect and Precursor Emissions

What embedded emissions are

Embedded emissions are the greenhouse gases released in the course of producing a good and attributed to that good. The unit is tonnes of CO₂ equivalent per tonne of product. In CBAM the functional unit is the tonnage produced under the same CN code, with special rules for cement, built on clinker, and fertilisers, built on nitrate content.

The word "embedded" does not mean the carbon is physically present in the product. A tonne of hot-rolled coil contains no meaningful carbon, but it carries the emissions released in making it.

The three layers

Direct emissions

Emissions occurring inside the installation boundary, from two sources. Combustion emissions arise from burning natural gas, coal or petroleum coke. Process emissions arise from chemistry rather than fuel: the calcination of limestone in cement, the carbon in coke used as a reductant in ironmaking, nitrous oxide from the nitric acid process in fertiliser production.

The distinction matters because process emissions cannot be reduced by switching fuel. Limestone calcination releases the same CO₂ regardless of how the kiln is heated. This is why emissions intensity in cement is reduced through clinker substitution rather than fuel conversion.

Indirect emissions

Emissions from the generation of purchased electricity. Under CBAM these are counted only for fertilisers, cement and agglomerated iron ore. Steel, aluminium and hydrogen are excluded — which is striking for aluminium, an electricity-intensive sector, and reflects the fact that EU producers in those sectors receive indirect cost compensation. The Commission's review proposes extending indirect emissions to those three sectors and removing that compensation.

Where indirect emissions do count, using actual values requires a direct technical connection, a power purchase agreement, or accepted renewable energy certificates. Guarantees of origin such as Türkiye's YEK-G and I-REC certificates are not accepted for this purpose. Otherwise the five-year average of the country grid emission factor applies. We set this out in CBAM indirect emissions and electricity.

Precursor emissions

The most frequently overlooked layer. The embedded emissions of a covered good include the emissions of its covered precursors. Where clinker becomes cement, pig iron becomes steel or ammonia becomes fertiliser, the precursor's emissions are carried forward.

The practical consequence is that the calculation does not stop at the installation fence. A re-roller buying semi-finished steel is determined far more by the emissions of that purchased input than by its own process. Where the supplier provides no data, a default value plus mark-up applies to the precursor — so an installation with excellent data of its own can still be pushed upward by its supplier's data policy.

How this differs from a corporate carbon footprint

Most companies approach CBAM holding a corporate GHG inventory. That inventory is a useful starting point but not a substitute. The differences are structural:

Dimension	Corporate carbon footprint	CBAM embedded emissions
Unit of account	Company or site, annual total	Product, per tonne
Boundary	Organisational and operational control	System boundaries defined in the Annexes
Value chain	Scope 3, fifteen categories	Covered precursors only
Electricity	Always included as Scope 2	Only in specific sectors
Transport	Included	Excluded today; under review
Assurance	ISO 14064, voluntary	CBAM-accredited verifier, mandatory

The same caution applies to life cycle assessments and EPDs. A cradle-to-gate EPD may share the underlying data infrastructure with a CBAM calculation — which is efficient — but the system boundaries and attribution rules do not coincide, and the resulting figures are not interchangeable.

Attribution: getting emissions onto the product

An installation rarely makes one product. How emissions from shared boilers, shared power supplies and shared processes are allocated between outputs is the most technical part of the calculation and is defined in the Annexes. The principle is that emissions are defined at the level of production processes and attributed to each process's output on a measurable basis.

Three situations cause most of the difficulty: combined heat and power, waste gases fed as fuel into another process, and a single line producing goods under several CN codes. Each has rules in the Annexes, and the verifier looks precisely at how those decisions were justified. We work through the build in calculating CBAM embedded emissions.

Frequently asked questions

Is an ISO 14064 verification sufficient for CBAM?

Not on its own. The verifier must be accredited under CBAM and the verification performed against CBAM methodology. Existing ISO 14064 and ISO 17029 capability is taken into account in accreditation assessments.

We buy renewable electricity. Are our embedded emissions zero?

No. Renewable electricity affects indirect emissions only, and only where the evidentiary conditions are met. Direct and process emissions are unaffected by electricity sourcing.

What if a precursor supplier will not provide data?

A default value plus the applicable mark-up is used for that precursor, raising the final figure.

Is the calculation repeated annually?

Yes. The reporting period is the year in which the goods were produced or imported, and each period requires its own calculation and verification.

Sources

• European Commission — CBAM legislation and guidance
• European Commission — CBAM verification

We work on building product-level embedded emissions calculations and adapting existing GHG inventories to CBAM methodology, under our CBAM accounting and reporting service. You can contact us with your questions.