The European Commission has clarified which steel transformation activities fall within the production-system boundaries used to calculate embedded emissions under the European Union’s definitive Carbon Border Adjustment Mechanism (CBAM). The distinction determines which processes must be reflected in emissions calculations and which remain outside the prescribed boundary, even when they consume energy or generate emissions at the same industrial site.
The Commission’s guidance identifies reheating, remelting, casting, hot and cold rolling, forging, pickling, annealing, coating, galvanising and wire drawing as activities within the relevant production boundary. Plating, cutting, welding and finishing are excluded.
Prescribed system boundaries govern steel emissions calculations
CBAM does not operate as a conventional life-cycle carbon footprint assessment. Its methodology applies prescribed system boundaries linked to the production process and the relevant Combined Nomenclature (CN) classification.
Consequently, physical emissions generated inside a factory do not necessarily all enter the embedded-emissions calculation for a particular CBAM good. The treatment depends on whether the activity falls within the applicable production-system boundary.
For steel processors in Serbia and Southeast Europe, this distinction requires monitoring, reporting and verification (MRV) systems to separate covered transformation steps from excluded operations. Metering, energy allocation and production records must distinguish the activities included in the calculation from those outside it.
Outsourced transformation can remain within the calculation
The Commission has also clarified the treatment of 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 subsequently return to the primary installation, the process must be treated as if it had occurred at the primary installation.
This approach prevents producers from reducing reported embedded emissions simply by transferring covered operations off site. Outsourced rolling, heat treatment or coating may therefore require relevant 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 establish access to production records, energy consumption figures, fuel-use data and supporting documentation. These arrangements are important where the equipment performing a covered operation belongs to another company.
Plant-level energy data must support process-specific reporting
The boundary rules create challenges for businesses whose existing carbon accounting has historically focused on corporate emissions or total plant consumption. A site-wide electricity bill alone may not provide sufficient evidence if the verifier cannot establish the share attributable to the covered production process.
Manufacturers must be able to demonstrate how relevant energy and emissions data have been allocated and why excluded finishing activities have not been incorrectly incorporated into the calculation.
The distinction also matters for technical due diligence by banks and industrial buyers. An established environmental, social and governance (ESG) reporting system does not necessarily demonstrate CBAM readiness if it cannot separate the prescribed production system from other activities at the site.
Verification increasingly depends on shop-floor records
For upcoming compliance cycles, industrial 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, making detailed operational data essential to substantiating embedded-emissions calculations under CBAM.
