The Current System: Global Defaults with Built-in Mark-Ups
Today’s CBAM allows importers to use default emission values when actual data isn’t available from suppliers. These aren’t neutral estimates – they’re deliberately designed to be conservative, meaning higher than typical actual emissions to incentivize companies to obtain real data from their suppliers. While “emissions based on default values do not need to be verified”¹ compared to actual emissions data which requires verification, this apparent simplicity comes at a significant cost – you’re essentially paying penalty rates for the convenience of not collecting real supply chain data.
The Financial Reality: Default Values Mean Higher Costs
“The fundamental principle driving CBAM’s design is straightforward: default values are intentionally set as mark-ups above actual emissions to incentivize companies to provide verified carbon emission data from their suppliers. When companies use default values instead of actual emissions data, they pay higher costs – creating a financial incentive to obtain real, verified emissions information throughout their supply chain.
Why Defaults Cost More
- Conservative by design: Default values represent higher-than-average emissions intensities
- No efficiency recognition: Cleaner producers get no benefit when defaults are used
- Supply chain cascade: When any tier uses defaults, total embedded emissions increase
- Certificate requirements: From 2026, higher reported emissions mean more expensive CBAM certificates
Post 2026: The Country-Specific Revolution
The current global default system is temporary. Starting in 2026, the EU could implement a more sophisticated – and potentially more carbon punitive – approach (Co2IQ, Rach24, S&P Global).
Country-Specific Benchmarks with Penalties
For the definitive period from 2026: “country-specific values will be set built on average emissions intensity in each country plus a mark-up.”²
“During the transitional period, only global default values will be made available. During the definitive period (when financial obligations apply), the Commission will provide country-specific or even region-specific default values for greater accuracy.”³
The Mark-up Methodology
Where actual emissions cannot be determined, “default values shall be used, set at the average emission intensity of the exporting country increased by a ‘proportionately designed mark up.’ Should reliable data not be available for a specific geography, average emission intensities of the worst performing EU ETS installations for that type of good shall be used instead.”⁴
Translation: High-emission countries like China, Turkey, and India will face country-specific defaults that are their national average plus a penalty. Countries without reliable data will face even higher penalties based on the EU’s worst performers (Co2IQ, Rach24, S&P Global).
The Unknown: How Big Will the Penalty Be?
The EU Commission hasn’t yet revealed the exact calculation methodology. S&P Global reports that “previous expectations of this were around 10%, but the final value will be subject to future implementing acts”⁴ expected later on in 2025.
What we don’t know yet:
- Will the mark-up be 10%? 20%? Higher?
- Will different countries face different penalty rates?
- Will the mark-up vary by sector (steel vs. cement vs. aluminum)?
- How often will these country-specific benchmarks be updated?
Supply Chain Intelligence: Your Competitive Advantage
The shift toward country-specific penalties creates enormous opportunities for companies that invest in supply chain carbon intelligence.
The Cascade Effect
Real emissions data is crucial because “EU importers need a solution to get actual emissions data after July 2024. As setting up an emissions monitoring can be a lengthy process, the dialogue with suppliers and manufacturers needs to be started now.”⁵
Why upstream matters most:
- Tier 2 and Tier 3 suppliers: Often represent 80%+ of total product emissions
- Default concentration: Raw materials and energy inputs frequently rely on default values
- Multiplier effect: Real data from upstream suppliers reduces total embedded emissions across the entire product
The Business Case for Real Data
Your direct suppliers have the same incentive you do: prove lower emissions to reduce costs. When suppliers can demonstrate actual emissions below country defaults (especially below the mark-up penalty), they become more competitive and can offer better pricing.
The Bottom Line: Default Values Are Becoming Expensive
As one industry analyst noted: “The European Commission’s newly published default emissions will not apply from 2026 onwards. Another set of default values will be introduced, setting the average emission intensity of each exporting country.”⁶
The CBAM is evolving from a reporting mechanism to a sophisticated carbon pricing system that will penalize companies relying on defaults – especially those sourcing from high-emission countries.
The opportunity is clear: Companies that invest in supply chain carbon intelligence today will gain significant cost advantages, while those relying on defaults will face increasing financial penalties as country-specific mark-ups take effect in 2026.
The winners in this new carbon-constrained trade environment will be those who can prove – not estimate – their actual emissions. The time to build that capability is now, before the penalties get much steeper.
¹ European Commission releases Omnibus Package I proposal to simplify EU Carbon Border Adjustment Mechanism regulation. Available at: https://www.crowell.com/en/insights/client-alerts/european-commissions-proposed-omnibus-simplification-package-what-are-the-main-changes-for-importers-of-cbam-goods
² Default values for CO2 emissions in CBAM reports. Available at: https://co2-iq.com/en/default-values-for-cbam-reports
³ What Are the Default Values Under the EU CBAM? REACH24H Consulting Group. Available at: https://www.reach24h.com/en/faq/what-are-default-values-under-eu-cbam.html
⁴ EU Carbon Border Adjustment Mechanism to raise $80B per year by 2040. S&P Global. Available at: https://www.spglobal.com/esg/insights/featured/special-editorial/eu-carbon-border-adjustment-mechanism-to-raise-80b-per-year-by-2040
⁵ Default values for CO2 emissions in CBAM reports. Available at: https://co2-iq.com/en/default-values-for-cbam-reports
⁶ EU CBAM’s default carbon emissions values published. MEPS International. Available at: https://mepsinternational.com/gb/en/news/eu-cbam-s-default-carbon-emissions-values-published