Why Electricity is a Key Focus for CBAM

Electricity is unique in that its carbon intensity depends entirely on the generation mix.

Imported power from coal- and gas-heavy systems emits up to 800–1,000 g CO₂ per kWh, compared with less than 50 g for renewables. Electricity trade is already material: in 2022 the EU imported ~27 TWh of power from neighbours, equivalent to 1 % of demand.

Including electricity in CBAM will drive exporters toward cleaner grids, but may also raise import costs for the UK and EU, where interconnectors underpin security of supply.

Utilities, traders and industrial consumers must prepare for higher procurement costs and invest in robust emissions disclosure systems. The measure could accelerate renewable adoption but also strain cross-border market integration.

At CFP Energy, we help businesses meet their CBAM obligations. From accessing CBAM certificates to hedging further costs with EU ETS allowances (EUAs), we can help you navigate and comply with the new legislation. Contact our carbon team today to see how we can help.

Power generation accounts for a significant portion of global carbon emissions, with EU member states importing high volumes from neighbouring countries through interconnectors.

Along with iron and steel, aluminium, cement, fertilisers, and hydrogen, CBAM also covers electricity imports. The mechanism works by equalising carbon costs between imported electricity and power generated inside the EU Emissions Trading System (EU ETS).

Without this equalisation, EU electricity generators would face unfair competition from CBAM electricity imports produced in countries where carbon emissions carry no or lower costs.

Navigating the Hurdles of CBAM for Electricity Traders

Unlike physical goods, which can be traced throughout their life cycle, electricity, as a flow of electrons, is far less tangible, making it much harder to trace. In the context of CBAM, where the production and transport of goods must be verified and reported at every stage, this creates a number of challenges, which this section will outline in detail.

Emissions Data Collection

Because electricity is traded through power exchanges and bilateral deals, with no clear line connecting a specific power station to the electricity that eventually enters the EU, emissions data collection presents a significant hurdle for importers.

In practice, businesses that import electricity, whether manufacturers or data centres, must use a range of formulas to work out the emissions data associated with the electricity they import.

In the first place, importers must determine the energy mix. This means identifying the sources of electricity generation, whether coal, wind, solar, or natural gas. Each source has a different emission factor, so correctly identifying these is essential.

Once this is done, importers can then apply a standard emission factor for each source to give a benchmark emissions value. From there, a calculated weighted average can be used to multiply each energy source by its emission factor; the results can then be summed to find the overall carbon intensity of the grid.

Financial Impact

The financial impact of CBAM electricity imports into the EU will be felt from 2026 onwards, when the transitional reporting phase ends and importers will have to start buying CBAM certificates.

CBAM certificates must be purchased and surrendered for each tonne of CO₂-equivalent emissions embedded in imported electricity, with the price of CBAM certificates linked to the EU ETS carbon price. If the exporting country's carbon pricing isn’t fully recognised under CBAM rules, the importer will end up paying carbon costs twice. To ensure continuity of service and a healthy market presence, businesses must prepare for these costs early.

Regulatory Complexity

The regulations surrounding electricity within CBAM are particularly complex compared to other goods and materials. Due to electricity’s nature as a commodity, where it is often traded ahead of time and across integrated markets, it can be difficult to determine exactly where the electricity was generated and what emissions are associated with its production.

In practice, this type of regulatory complexity stems from the default value methodologies and detailed reporting requirements.

When actual emissions data for imported electricity can't be determined - a common occurrence due to issues of traceability - CBAM applies default values based on the exporting country's generation mix. These defaults often assume higher carbon intensity than actual power flows, effectively penalising importers that can't provide specific evidence.

To avoid these issues, importers should maintain records of real-world emissions data, thereby eliminating the penalties associated with a reliance on default carbon intensity values.

Why the Generation Mix Matters for CBAM

The carbon intensity of electricity depends entirely on which power stations were generating at the exact moment the power crossed into EU territory. Unlike manufactured products that have stable, calculable carbon footprints, electricity doesn't.

The mix of power generation shifts constantly. This is partly due to hourly weather changes that affect wind and solar output, and also due to the changeability of daily demand patterns.

Seasonal variations are also a factor: grids can see heating demand surge in winter at the same time that solar production decreases, translating to a shift in the carbon intensity of electricity that's supplied to the grid.

Under CBAM, the timing of electricity imports directly affects the carbon cost, since charges are based on the emissions intensity of the power generated at the moment of import, rather than on an annual average.

CBAM Electricity UK: The Domestic Impact

For UK-EU electricity trade, there's an added complication. UK generators exporting to the EU will be subject to CBAM charges from 1 January 2026. The UK’s own CBAM, set to begin in 2027, however, won't include electricity in its initial scope. This creates a regulatory gap where UK exporters may face carbon costs under EU rules without reciprocal treatment at home.

Linking the UK and EU Emissions Trading Schemes (ETS) could potentially fix this problem. A UK-EU linkage would allow mutual recognition of carbon allowances, enabling UK exporters to avoid EU CBAM charges by demonstrating compliance with an equivalent carbon pricing system.

However, while both sides agreed to pursue a linkage at the May 2025 summit, the process is still in its early stages. No formal agreement or timeline has been finalised.

How CBAM Electricity Creates a Market for Clean Power

CBAM puts a price tag on the carbon content of imported electricity. Renewable electricity faces smaller charges, while fossil-based power faces increased costs. This price difference significantly changes the viability of carbon-intensive electricity exported to the EU.

Due to CBAM pricing that makes high-carbon electricity more costly, renewables become more profitable than their fossil-based counterparts, shifting investment incentives towards cleaner generation.

Meanwhile, countries and companies that can demonstrate that their electricity comes from low-carbon sources, backed up with generation records, can undercut competitors still using default carbon values or unable to verify their generation mix.

As CBAM becomes increasingly established, EU buyers are likely to favour imports with credible carbon credentials. This is because low-carbon imports cost less under CBAM, while helping them meet their own climate targets and demonstrate their commitment to sustainability.

Navigate Electricity Market Challenges with CFP Energy

Purchasing and trading electricity under CBAM is set to become increasingly complex.

At CFP Energy, we're specialists at helping electricity producers, traders, and commercial consumers manage CBAM's impact on their operations. We work with clients to calculate embedded emissions in electricity flows, establish compliant reporting systems, and develop commercial strategies that minimise carbon-related costs while maximising market opportunities.

Whether you're a business seeking power purchase agreements (PPAs) that take into account carbon accounting rules across multiple jurisdictions, or an enterprise seeking to harness clean power under CBAM reporting rules, we can help: our carbon specialists are available to discuss your specific requirements and develop bespoke compliance strategies.

Contact our specialist CBAM team for immediate support, here.