Covered and excluded transformation steps under CBAM
The European Commission has clarified which steel transformation activities fall within the production-system boundaries used to calculate embedded emissions under the EU’s definitive Carbon Border Adjustment Mechanism (CBAM). The boundary distinction determines which processes must be reflected in emissions calculations and which remain outside, even if they occur at the same industrial site. The guidance specifies that reheating, remelting, casting, hot and cold rolling, forging, pickling, annealing, coating, galvanising and wire drawing are included. Plating, cutting, welding and finishing are excluded.
Production-system boundaries shape embedded-emissions calculations
The Commission’s approach does not function as a conventional life-cycle carbon footprint assessment. Instead, it applies prescribed system boundaries linked to the production process and the relevant Combined Nomenclature (CN) classification. As a result, physical emissions generated inside a factory do not automatically enter the embedded-emissions calculation for a given CBAM good. The inclusion depends on whether the activity is within the applicable production-system boundary.
MRV requirements for steel processors in Serbia and Southeast Europe
For steel processors in Serbia and Southeast Europe, the boundary rules require monitoring, reporting and verification (MRV) systems that separate covered transformation steps from excluded operations. Metering, energy allocation and production records must distinguish activities included in the calculation from those outside it. This affects how operators document energy use and emissions associated with specific covered processes rather than relying on site-wide totals.
Toll processing and secondary installations within the calculation
The Commission also clarified how to treat covered processes performed outside the primary installation. Where an in-scope transformation step takes place at a secondary installation or is outsourced to another company, and the goods return to the primary installation afterward, the process must be treated as if it occurred at the primary installation. The guidance is intended to prevent reductions in reported embedded emissions by moving covered operations off site.
Outsourced rolling, heat treatment or coating may therefore require activity and emissions data to be incorporated into the primary installation’s CBAM documentation. Contracts with toll processors and other external service providers may need to include access to production records, energy consumption figures, fuel-use data and supporting documentation. This is particularly relevant when the equipment performing a covered operation belongs to another company.
Process-specific allocation of plant energy data
The boundary rules create reporting challenges for businesses whose carbon accounting has focused on corporate emissions or total plant consumption. A site-wide electricity bill alone may not provide sufficient evidence if a verifier cannot establish the share attributable to the covered production process. Manufacturers must demonstrate how relevant energy and emissions data have been allocated and why excluded finishing activities were not incorrectly incorporated into calculations.
Shop-floor records for compliance cycles
The distinction also affects technical due diligence by banks and industrial buyers. Even where an environmental, social and governance (ESG) reporting system exists, it does not necessarily show CBAM readiness if it cannot separate the prescribed production system from other activities at the site. For upcoming compliance cycles, operators will need to connect each relevant transformation step with appropriate meters, production orders and material movements.
This includes maintaining consistent records when covered processes are performed by external contractors. The Commission’s clarification places production-process boundaries at the centre of steel-sector emissions reporting by making detailed operational data essential for substantiating embedded-emissions calculations under CBAM.