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 distinction determines which processes must be reflected in emissions calculations and which remain outside the prescribed boundary, including when they occur at the same industrial site.
Steel transformation steps included in CBAM production boundaries
The Commission’s guidance lists 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 from that boundary.
These boundaries are applied to determine whether physical emissions generated during an activity enter the embedded-emissions calculation for a specific CBAM good. The treatment depends on whether the activity is within the applicable production-system boundary.
CBAM methodology based on prescribed system boundaries
CBAM does not function as a conventional life-cycle carbon footprint assessment. Instead, its methodology uses prescribed system boundaries linked to the production process and the relevant Combined Nomenclature (CN) classification.
As a result, emissions produced inside a factory do not automatically all become part of embedded-emissions calculations for a given CBAM good. The inclusion of emissions depends on whether they relate to transformation steps covered by the prescribed boundary rules.
MRV requirements for steel processors in Serbia and Southeast Europe
For steel processors in Serbia and Southeast Europe, the boundary distinction requires 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 embedded-emissions calculations from those outside the boundary.
This means evidence used for CBAM reporting cannot rely solely on aggregated site consumption data. For example, a site-wide electricity bill may not be sufficient if a verifier cannot establish the share attributable to the covered production process.
Treatment of covered processes performed off-site
The Commission also clarified how covered processes are handled when 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.
This clarification is intended to prevent producers from reducing 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.
External contractors and access to operational data
Contracts with toll processors and other external service providers may need to include arrangements for access to production records, energy consumption figures, fuel-use data and supporting documentation. These arrangements are relevant where equipment performing a covered operation belongs to another company.
The boundary rules also affect how manufacturers document allocation decisions for energy and emissions data. Manufacturers must demonstrate how relevant energy and emissions have been allocated and why excluded finishing activities have not been incorrectly included in embedded-emissions calculations.
Shop-floor records supporting verification under upcoming cycles
The Commission’s clarification places production-process boundaries at the centre of steel-sector emissions reporting. 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 distinction can also matter for technical due diligence by banks and industrial buyers where existing environmental, social and governance (ESG) reporting does not necessarily separate the prescribed production system from other activities at a site.