Europe’s Carbon Border Adjustment Mechanism
•• CBAM
The Carbon Border Adjustment Mechanism (CBAM)
What is CBAM?
As from October 1, 2023, Regulation (EU) 2023/956 (CBAM Regulation) introduced the EU’s Carbon Border Adjustment Mechanism (CBAM) with the objective to reduce carbon emissions, put a fair price on the carbon emitted during the production of carbon intensive goods imported into the EU and encourage a cleaner industrial production through a methodology for calculating embedded emissions according to the Paris Agreement and the EU Fit for 55 package.
This mechanism will be implemented in phases and is aligned with the phase-out of the allocation of free allowances set in the EU Emissions Trading System (ETS).
This initial transitional period intends to:
- serve as a pilot and learning phase for importers, producers, and authorities.
- collect information on the emissions to refine the methodology for calculating embedded emissions.
- bring the price of carbon produced in the EU into line with the price of carbon-intensive goods imported into the EU.
When and on what sort of products will CBAM be implemented?
The EU’s Carbon Border Adjustment Mechanism (CBAM) is expected to be fully in place as of 2026, but initially it will only apply to a certain number of products with a high risk of carbon leakage such as:
- iron / steel
- cement
- fertilizers
- aluminum
- hydrogen
- electricity
In line with the CBAM Regulation, Implementing Regulation (EU) 2023/1773 lays down rules for reporting obligations on the quantity of imported goods, direct and indirect emissions embedded in them, and any carbon price due for those emissions.
In essence, the EU is attempting to even the playing field for domestic industrials that comply with renewable energy policy by levying a tax on imported goods produced with a higher Scope 1 and Scope 2 carbon content.
Further information can be found here: Carbon Border Adjustment Mechanism (CBAM) | Access2Markets
What does this mean for energy use in the targeted sectors?
It means that to avoid elements of the levies associated with indirect (Scope 2) carbon emissions, companies that sell these products into the EU would need to both procure renewable energy in respect of their production and demonstrate this via a methodology recognized by the CBAM legislation.
In order to facilitate the use and disclosure of renewable electricity among CBAM importers, the I-TRACK Foundation has worked to provide a robust methodology that ensures alignment with national energy attribute certificate (EACs) systems such as the I-REC for Electricity, and other local electricity market regulations.
The I-TRACK Foundation’s CBAM Compliant CPPA
The I-TRACK Foundation’s CBAM Compliant CPPA
To support companies seeking to demonstrate CBAM compliance, I-TRACK and DLA Piper have developed a template power purchase agreement (PPA) which may be used by third country market participants to comply with the requirements of the CBAM regulation. This document has been prepared on the basis of general good international market practice for PPAs and offers a neutral template which can be used and adapted by all energy end users seeking to demonstrate CBAM compliance. The PPA is intended to be a framework agreement with individual country annexes for local market compliance and is sufficiently flexible to allow for implementation in most non-EU electricity markets. The document is free to use, and with a growing number of country-specific annexes for larger CBAM-affected markets to support translating local market issues into terminology and a format that aligns with EU policy.
To learn more:
- Download the CBAM compliant template PPA. It’s helpful if commercial and legal colleagues in your company read and understand the document, and compare it to existing PPAs.
- Download the country-specific annexes for any relevant countries in which you purchase renewable energy. These documents are used to bridge specific nuances in a particular country to the body document, and what aligns with the EU requirements.
- Use the template PPA and country specific annexes in future purchases of renewable energy or apply this PPA agreement on top of existing agreements to mirror current delivery agreements or PPAs in a standardized format. For future energy purchases, your organization can use these documents to demonstrate compliance with CBAM. For existing energy purchases, consider updating these contracts – or applying this agreement on top of existing agreements keeping commercial and legal terms intact, but aligning these with the CBAM requirements set out in the template PPA.
- Use the PPA and relevant EACs to demonstrate CBAM compliance. Your organization will need to be able to demonstrate to the Commission, national regulatory/customs authorities and/or auditors that it has purchased a volume of renewable energy and EACs, which correspond to the demands of production processes of the CBAM relevant products being sold to Europe. As such, you’ll need to ensure your PPA aligns with CBAM requirements and is backed up by EACs.
For any questions, please contact the I-TRACK Foundation secretariat via secretariat@trackingstandard.org.
CPPA
Appendices by country
Disclaimer
The template Power Purchase Agreement and its Country Specific Annexes have been developed by the I-TRACK Foundation, DLA Piper and local counsel exercising all reasonable care and based on available legislation and guidance in respect of EU CBAM compliance at the date of its publication, in particular on the basis that a power purchase agreement would be treated by the EU Commission on no less stringent criteria than for renewable fuels of non-biological origin under Regulation (EU) 2023/1184. However, the I-TRACK Foundation, DLA Piper and local counsel involved in its preparation and approval shall not be liable or otherwise responsible for its use and any damages or losses resulting out of its use in any individual case and in whatever jurisdiction.
It is therefore the responsibility of each party wishing to use this template Power Purchase Agreement and its Country Specific Annexes to ensure that its terms and conditions under the agreed governing law are legally binding, valid and enforceable, compliant with the EU CBAM requirements (as updated from time to time) and best serve to protect the user’s legal interests. Users of this template Power Purchase Agreement and its Country Specific Annexes are urged to consult their own counsel during negotiations and prior to signature.
The I-TRACK Foundation and DLA Piper reserve the exclusive right to adapt the template Power Purchase Agreement and its Country Specific Annexes from time to time to align with updates in legislation and formal guidance from the EU Commission and other relevant authorities. The I-TRACK Foundation, DLA Piper and local counsel involved in the preparation and approval shall not be liable or otherwise responsible for previous versions, and users are recommended to consult such amendments from time to time to ensure that any signed copies of the template Power Purchase Agreement and its Country Specific Annexes remain compliant with such updates in legislation and formal guidance.
The template Power Purchase Agreement was shared with the European Commission in April 2025, but at the time of publishing, the legislative process for the Implementing Act pursuant to Art 7(7) was ongoing, and the Commission could not provide comments at this stage. We will conduct a further review once this process is complete. The template Power Purchase Agreement has been drafted based on the principles of the Regulation to which the Delegated Act will align, and major changes to the structure of the template are not expected.
Further guidance on the usage of this template Power Purchase Agreement and its Country Specific Annexes is available on the I-TRACK Foundation website. Any questions and comments may be directed to secretariat@trackingstandard.org and andreas.gunst@dlapiper.com and kenneth.wallace-mueller@dlapiper.com
DLA Piper
DLA Piper is one of the world’s largest law firms, with a presence in over 40 countries across the Americas, Asia Pacific, Europe, Africa, and the Middle East and over 4,300 lawyers worldwide. It’s dedicated Energy and Natural Resources (ENR) sector practice helps clients navigate the complexities of a rapidly evolving industry. We understand the challenges posed by a volatile market, increasing regulation and transactional risk, and the need for innovative legal and technical solutions.
DLA Piper’s ENR practice has been voted as the number one law firm for advising on power purchase agreements since 2021, and its lawyers are experienced in advising clients along the entire value chains for electricity and gas (including biomethane and hydrogen), biofuels and e-fuels, in the voluntary carbon markets and emissions trading schemes, as well as on various questions regarding CBAM and the role of PPAs.
DLA Piper is a pioneer in the energy sector as it was the first law firm to sign a corporate power purchase agreement as buyer to cover electricity demand in its European offices. It is also one of the first members of the Legal Charter 1.5, a group of international law firms committed to reducing their Scope 1, 2 and 3 emissions in line with Science Based Targets, and contributing to limiting global temperature increases to 1.5°C above 1990 levels.