- The European Commission has published draft rules under the EU’s Carbon Border Adjustment Mechanism (CBAM).
- It allows firms to offset some obligations using international carbon credits, while fully recognising domestic carbon taxes and emissions trading systems paid outside the EU.
- Only high-integrity international carbon credits authorised under Article 6 of the Paris Agreement will qualify, and these will be capped at 10% of embedded emissions.
The European Commission, the executive cabinet of the European Union (EU), has published the draft Implementation Regulation, covering the ‘Article 9’ regulation of the carbon border adjustment mechanism (CBAM). The draft rules allow companies to use domestic and international carbon credits to offset CBAM obligations.
Published on Wednesday, 13 May, the document sets out for the first time how carbon prices paid in non-EU countries will be recognised under the CBAM.
Domestic carbon prices paid under a third country’s emissions trading system (ETS) or carbon tax will be fully deductible, with no additional EU quality requirements.
International credits – Internationally Transferred Mitigation Outcomes authorised under Article 6.2 and 6.4 of the Paris Agreement – will also be accepted, though capped at 10% of reported embedded emissions. This ceiling intends to mitigate risks of the mechanism being gamed with low-integrity carbon credits.
Carbon credits have high integrity when they represent real, additional, measurable, and independently verified evidence of the removal or reduction of carbon dioxide (CO2). This largely means a more stringent level of oversight.
Low-integrity carbon credits remain prevalent, with ostensibly ‘offsetting’ projects being deemed near worthless and constituting ‘phantom credits’. The scale is severe: an analysis of nearly one billion tonnes of carbon credits – about one-fifth of all credits ever issued – found that fewer than 16% represented actual emissions reductions.
For Brussels, the risk is that people may pay off CBAM obligations through carbon credits that don’t correspond to actual emissions reductions. Trade Finance Global (TFG) heard more from Nick Ogilvie, Product Manager – CBAM Lead at CarbonChain, the software firm in supply chain accounting.
On whether this writes emerging markets out of the equation, “there are genuine concerns,” Ogilvie said. “Claiming the actual carbon price deduction requires actual emissions data, which is a high bar for smaller operators in emerging markets, and Article 6.4 credits only count where they’re specifically authorised for international transfer – which excludes the bulk of expected 6.4 issuance.”
“That said,” Ogilvie continued, “default carbon prices remain available as an alternative and the 5% boundary tolerance softens some of the edges, so it’s not a total lockout – but the compliance bar is undeniably steep.”
For producers of steel, aluminium, cement, fertilisers, and hydrogen selling into the EU, a credible domestic carbon price, or qualifying Article 6 credits, now translates directly into a lower EU import bill. This is significant for producers “leaning on international offsets,” said Ogilvie. Additionally, “being able to use one accredited person for both emissions verification and carbon price certification meaningfully cuts the compliance overhead,” he said.
The draft should make CBAM, infamously daunting for emerging market exporters, somewhat more manageable.
It also brings clarity into calculating the ‘effective carbon price paid’: taking the carbon costs incurred under a third country’s pricing scheme and deducting any rebates, free allowances, or other forms of compensation received, ensuring only the net cost genuinely borne by the producer is credited against the CBAM obligation.
“The headline win for third-country suppliers is clarity – they now know exactly how a domestic carbon price converts into a CBAM deduction, including how free allowances, rebates, and indirect cost compensation get netted off,” said Ogilvie.
The draft is open for feedback over the next four weeks. “Consultations on these technical files genuinely do shape outcomes – the Commission has iterated CBAM substantially based on stakeholder input, including the simplifications adopted in October 2025,” said Ogilvie.
Nonetheless, implementing acts can only progress on technical details rather than fundamental ones. “Specific, evidenced points on workability tend to land; broad opposition to the framework rarely does,” Ogilvie summarised.
