CBAM Rules Set for 2026, with Physical Hourly PPAs at the Core

The European Commission has finalized CBAM rules for its 2026 start, allowing importers to lower their carbon costs by proving the use of physically deliverable, hourly-matched clean electricity under strict PPA requirements. This could unlock demand for physical PPAs in SEE markets outside the EU.

In late December 2025, the European Commission adopted a comprehensive package of practical rules that significantly reshape how carbon emissions are accounted for under the Carbon Border Adjustment Mechanism (CBAM). These rules apply ahead of CBAM’s definitive phase which began on 1 January 2026, marking the transition from the current transitional reporting phase which started in October 2023 to full financial obligations. It requires EU importers to purchase and surrender CBAM certificates for embedded emissions of covered goods, with gradual phase-in until 2034. These rules provide clarity on how embedded emissions in imported goods will be calculated and verified.

CBAM, first introduced in May 2023, is designed to level the playing field between EU producers and foreign manufacturers. Under CBAM, a carbon charge is added to imports of carbon-intensive goods such as cement, fertilisers and aluminium into Europe from countries without an equivalent emissions trading system. From 2026, EU importers will be required to purchase and surrender CBAM certificates reflecting the carbon content of the goods they import, effectively extending the EU carbon price to selected imports.

During the definitive phase, importers bringing more than 50 tonnes of CBAM-covered goods into the EU will need to register as authorised CBAM declarants. They will be required to report the emissions embedded in their imports each year and surrender the corresponding number of CBAM certificates purchased from national authorities. Importers of goods from these countries into the EU will bear the cost of carbon emissions on imports. Indirect embedded emissions must be determined for these goods and are calculated by multiplying the electricity consumed to produce goods with a relevant emission factor which is based on the electricity mix of each country.

However, the new rules allow importers to reduce their CBAM liability if they can demonstrate that a carbon price has already been paid or that lower-carbon electricity was used in production. Where electricity is supplied under a PPA, producers may apply an actual emission factor instead of the grid average. The Commission places physical, hourly delivery of electricity at the core of this approach and requires contractual evidence of a PPA directly linking the authorised CBAM declarant to a third-country electricity producer, covering the relevant volumes and time periods. To demonstrate a direct technical link, producers must provide a simple grid diagram showing the connection between the production site and the electricity generation source. They must also supply smart meter data confirming that the electricity used was delivered within the same hourly measurement period.

The implications are significant. Companies able to secure physically deliverable, hourly-matched clean electricity for production destined for the EU could materially reduce their CBAM costs, improving their competitiveness in EU markets. Furthermore, energy attribute certificates play no role in the framework, as most systems are not yet capable of supporting robust hourly tracking. The Commission also did not introduce an asset age restrictions similar to those applied under the EU’s green hydrogen rules.

These changes are likely to have a meaningful impact on PPA demand in South-Eastern European countries outside the EU, such as Serbia, Montenegro and North Macedonia. To date, PPA activity in these markets has been very limited, with only one publicly announced PPA in Serbia in 2023. However, producers of carbon-intensive goods exporting to the EU will face rising CBAM costs unless they reduce the embedded emissions in their products. Securing physically deliverable, hourly-matched clean electricity through PPAs offers a clear route to lowering indirect emissions from electricity use, reducing the number of CBAM certificates that EU importers must purchase and surrender.

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