Cross-border renewable electricity contracts can qualify for installation-specific actual emissions under the EU Carbon Border Adjustment Mechanism (CBAM) only if specific legal and evidentiary conditions are met. Whether an importer can use actual emissions instead of default values can depend on the structure of the power purchase agreement (PPA). The distinction between a direct PPA and a tripartite arrangement is therefore relevant for CBAM reporting.
Under the current CBAM framework, default values apply to imported electricity unless all conditions for using installation-specific actual emissions are satisfied. These conditions include a qualifying physical PPA relationship and compliance with relevant network requirements. They also require a generating installation below 550 g CO2/kWh fossil-fuel-origin emissions, firm electricity nominations matched with production in periods of no more than one hour, and independent verification supported by at least monthly interim evidence.
Contractual structures for physical electricity supplies
Commission Implementing Regulation (EU) 2025/2547 sets out more detailed requirements for proving the contractual link behind physical electricity supplies. A qualifying physical PPA may be concluded directly between the electricity producer and the authorised CBAM declarant. Where an intermediary is involved, the contractual arrangement must be supported by one coherent three-party agreement covering the relevant physical supply.
A chain of bilateral resale agreements does not, by itself, create the same evidentiary chain recognised under the implementing rules. This separates accepted contractual structures from conventional wholesale trading arrangements where electricity may move through multiple bilateral transactions before reaching an EU importer. In that context, the evidentiary basis for installation-specific actual emissions may not be established through resale sequencing alone.
A direct physical PPA between the producer and the authorised CBAM declarant provides the clearest contractual link. If a trader remains between those parties, the three-party structure must show a coherent relationship for the relevant supply. The rules require more than reliance on separate resale contracts in sequence.
Evidence obligations beyond delivery timing
Contractual arrangements must support CBAM’s annual compliance cycle, including activities that continue after physical electricity delivery has been settled. Data-access provisions, record-retention obligations, cooperation with verifiers, and rights to correct information must remain effective after delivery. These obligations also need to hold after contract termination or a change of service provider.
The timing of CBAM declarations affects how these provisions operate in practice. Physical electricity trades may be completed well before corresponding declarations and supporting evidence are finalised. Parties therefore need to preserve access to records and maintain the ability to address discrepancies when evidence is being prepared.
Renewable procurement used by industrial buyers
Steel and aluminium producers may use traders to aggregate renewable generation and manage electricity balancing. Even where renewable PPAs retain commercial value for industrial consumers, a conventional portfolio resale should not automatically be treated as preserving eligibility for installation-specific actual-emissions treatment. It also does not automatically reduce the metal product’s current CBAM liability.
The contractual structure needs to distinguish commercial benefits of renewable electricity procurement from CBAM-specific conditions for actual-emissions treatment. The existence of a renewable electricity supply arrangement alone does not establish that all requirements for installation-specific actual emissions have been met. Eligibility depends on satisfying each condition tied to physical PPA structure and evidence.
PPA review for financing and operational implementation
Lenders need to assess whether any PPA premium remains supportable after review against applicable legal requirements. Where project debt-service assumptions depend on that premium, evaluation should occur before financial close rather than after commercial operation begins. This assessment is linked to whether a direct or tripartite structure meets CBAM-related requirements.
The contract review should include an operational test involving commercial, scheduling, compliance, treasury, and engineering teams. These teams should trace a sample transaction through electricity nomination, invoicing, evidence closure, and fallback settlement before product release. The purpose is to check whether contractual terms can be implemented across operational and compliance functions.
For contract managers, release decisions should depend on whether parties’ arrangements can be reconciled consistently without informal assumptions. The key elements include ownership-title flow, payment flows, data rights, and the fallback formula. Consistency across these elements is treated as central for supporting CBAM-related evidence requirements.
Separate EU reform proposal under negotiation
A separate reform proposal identified as COM(2025) 989 would change how electricity is treated under CBAM if adopted. The proposal includes revisions to the methodology for electricity default values and changes to parts of the conditions governing use of actual values. It would also broaden what counts as physical PPAs by including arrangements involving intermediaries.
The reform proposal would modify congestion and electricity nomination rules as well. If adopted, these changes could alter contractual structures relevant to electricity importers compared with current-law assumptions. The legislative process includes adoption of a Council negotiating position on 12 June 2026 and a European Parliament position on 15 September 2026.
Despite those steps, the proposal remains under interinstitutional negotiation and has not become enacted law. Its potential provisions are therefore separate from current-law pricing and compliance assumptions used for financing and contract administration. For such administration under current rules, consistency between transfer of title, payment obligations, and evidence supporting CBAM treatment remains central.