released during production, plus the indirect emissions from the electricity consumed during production. iv In practice, the full picture is broader still, because the embedded emissions of any input materials, also know as precursors, must also be accounted for and carried through into the final good. The result is a layered calculation that traces carbon back through most of the upstream production chain.
Direct emissions: Scope 1, always included Direct emissions are defined as the greenhouse gases released from the production processes themselves, including the production of any heating and cooling consumed on-site. iv For metals, this covers two main sources. The first is combustion which includes the burning of fossil fuels for heat like coke in a blast furnace or natural gas in a reheating furnace. Second are chemical reactions that arise from the production chemistry itself, not from combustion. The most significant example in adjacent sectors is the
calcination of limestone, which releases CO 2 as a by-product. For many iron & steel and aluminium goods, Annex II of Regulation( EU) 2023 / 956 specifies that only direct emissions are to be considered in the definitive period. iv
Indirect emissions: Scope 2, electricity consumption Indirect emissions are those arising from the generation of electricity consumed during production. iv They are not embedded in the material itself but in the energy used to transform it. For a producer in a country with a coal-heavy electricity grid, the carbon cost of running electricity-intensive operations is substantially higher than for a producer drawing on hydropower or nuclear electricity. Where the importer can demonstrate the actual source and emission factor of the electricity used, actual indirect emissions may be reported. ii Otherwise, country-level default emission factors apply. As noted above, iron and steel and aluminium producers are excluded from this requirement in the CBAM definitive period, owing to the existing EU ETS indirect cost compensation mechanism.
Precursor emissions: the upstream chain A precursor is formally defined as any input material into a production process that is itself listed in Annex I of Regulation( EU) 2023 / 956. v In other words, a precursor is a CBAM good used to make another CBAM good.
Embedded emissions: final declaration The rule is straightforward in principle. The embedded emissions of all precursors, its own direct emissions, and any applicable indirect emissions are inherited by the final good and must be declared. v Whether the precursor is produced within the same installation
Figure 1. The three components of embedded emissions.
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