Steelmakers supplying the European Union cannot calculate artificially lower embedded emissions for export batches simply because those tonnes are destined for the EU. European Commission guidance published in its CBAM Questions and Answers updated on 15 October 2026 establishes that emissions accounting must follow the applicable production-process and functional-unit rules, rather than selectively allocating lower-emission output to European customers.
The Commission states that an installation cannot have more than one production process per Combined Nomenclature (CN) code and that operators cannot artificially divide production processes according to the destination market of their goods. Where multiple production routes generate the same functional unit, the methodology requires a single production process encompassing those routes.
Production routes determine emissions accounting
The clarification is relevant to steel mills operating mixed production systems. Producers cannot automatically assign renewable electricity, higher-quality scrap or their lowest-emission production campaigns to EU-bound goods while excluding more carbon-intensive output sold elsewhere.
Any distinction between production processes or functional units must be supported by the applicable CBAM methodology and evidence. Designating particular tonnes for European customers does not, by itself, justify a separate emissions calculation.
For producers in Serbia and other Western Balkan markets, the requirements are particularly relevant where installations combine grid electricity, self-generation, scrap and primary metallic inputs. When several production routes manufacture the same CN-coded product within one installation, the emissions allocation must reflect the full functional unit rather than a specially constructed emissions account for EU exports.
Steel investment continues amid weak market conditions
The clarification comes as Europe’s steel industry seeks to restore production capacity while investing in decarbonisation. EUROFER reported that 10 million tonnes of crude steelmaking capacity had restarted in 2026, alongside EUR 3.4 billion in investment decisions already taken by producers.
Market conditions remain weak. The association has reported a sharp decline in EU steel exports to third countries during the first half of 2026, while apparent steel consumption in the EU is expected to remain almost flat over the year.
Against this backdrop, the Commission’s approach limits the scope for destination-based carbon differentiation. Non-EU producers must demonstrate emissions performance through their actual production routes, installation operations and verifiable inputs, rather than assigning their lowest-emission output to EU customers after production.
Plant-wide decarbonisation gains importance
The rules increase the relevance of improvements that reduce emissions across the production process. Investment in lower-emission furnaces, renewable electricity, improved metallic inputs and process efficiency can strengthen an installation’s overall emissions performance.
By contrast, a strategy focused narrowly on producing selected low-carbon batches for European customers may have limited value if the resulting emissions calculations cannot be reconciled with the Commission’s functional-unit and production-process requirements.
Importers and banks face greater scrutiny of supplier claims
EU importers and banks assessing steel suppliers will need to distinguish between verifiable emissions performance and contractual claims that particular shipments are environmentally preferable. Labelling a shipment as low-carbon or designating it for the European market does not establish that it qualifies for a separate CBAM emissions calculation.
Verification must establish whether the emissions data and allocation methodology comply with the applicable production-process rules. For steelmakers preparing to report actual embedded emissions under CBAM, the central requirement is consistency between the factory’s production configuration, its supporting evidence and the emissions figures reported for covered goods.
