Cross-border renewable electricity contracts need to satisfy legal and evidentiary requirements to qualify for installation-specific actual emissions under the EU Carbon Border Adjustment Mechanism (CBAM). Whether an importer can use actual emissions rather than default values can depend on the structure of a power purchase agreement (PPA). The distinction between a direct PPA and a tripartite arrangement is central to that eligibility.
Under the current CBAM framework, default values apply to imported electricity unless all conditions for using installation-specific actual emissions are met. These conditions include a qualifying physical PPA relationship and compliance with relevant network requirements. They also require a generating installation below 550 g CO₂/kWh from fossil-fuel origin, firm electricity nominations matched with production in periods of no more than one hour, and independent verification supported by at least monthly interim evidence.
Contractual structures under Commission Implementing Regulation (EU) 2025/2547
Commission Implementing Regulation (EU) 2025/2547 sets more specific requirements for demonstrating the contractual relationship behind physical electricity supplies. A qualifying physical PPA may be concluded directly between the electricity producer and the relevant authorised CBAM declarant. If an intermediary is involved, the contractual arrangement must be supported by one coherent three-party agreement covering the relevant physical supply.
A sequence of bilateral resale agreements does not, on its own, establish the same evidentiary chain. The implementing rules distinguish these contractual structures from conventional wholesale trading arrangements where electricity may move through multiple bilateral transactions before reaching an EU importer. In that context, the contractual link required for actual-emissions treatment is not automatically created by resale activity.
A direct physical PPA between the producer and the authorised CBAM declarant provides the clearest contractual connection. Where a trader remains between those parties, the three-party structure must establish a coherent relationship for the relevant supply. This requirement is intended to avoid relying solely on a chain of separate resale contracts.
Evidentiary requirements tied to CBAM declarations
Contractual arrangements must support the annual CBAM compliance cycle, including activities that continue after physical electricity delivery is settled. Data-access provisions, record-retention obligations, cooperation with verifiers, and rights to correct information must remain effective after delivery, contract termination, or a change of service provider. These elements are part of maintaining eligibility for installation-specific actual emissions.
The timing of CBAM declarations affects how these provisions operate in practice. Physical electricity trades may be completed well before corresponding declarations and supporting evidence are finalised. Parties therefore need to preserve access to records and maintain the ability to address discrepancies when evidence is being prepared.
Renewable procurement used by steel and aluminium supply chains
Steel and aluminium producers may rely on traders to aggregate renewable generation and manage electricity balancing. While renewable PPAs can retain commercial value for industrial consumers, portfolio resale arrangements should not automatically be treated as preserving eligibility for actual-emissions treatment. Such arrangements also should not be assumed to reduce the metal product’s current CBAM liability.
The contractual structure needs to separate commercial benefits of renewable procurement from CBAM-specific conditions for installation-level actual emissions. The existence of a renewable electricity supply arrangement alone does not establish that all requirements have been met. Eligibility depends on meeting the specific criteria tied to physical PPAs and evidence.
PPA review for financing and operational implementation
Lenders need to determine whether a PPA premium remains supportable after review against applicable legal requirements under CBAM rules. Where project debt-service assumptions depend on that premium, assessment should occur before financial close rather than after commercial operation begins. The direct or tripartite structure should therefore be evaluated early if it affects financing assumptions.
The contract review should include an operational test involving commercial, scheduling, compliance, treasury, and engineering teams. These teams are expected to trace a sample transaction through electricity nomination, invoicing, evidence closure, and fallback settlement before product release. The purpose is to test whether contractual terms can be implemented across operational and compliance functions.
For contract managers, release decisions should depend on whether parties’ arrangements can be reconciled consistently. This includes ownership-title flow, payment flows, data rights, and fallback formula without relying on informal assumptions. The requirement links contractual documentation with practical execution steps needed for CBAM evidence.
Separate reform proposal affecting future electricity treatment
A separate reform proposal identified as COM(2025) 989 would materially change how electricity is treated under CBAM if adopted. The proposal includes revisions to the methodology for electricity default values and parts of conditions governing use of actual values. It would also broaden physical PPAs to include arrangements involving intermediaries.
The reform proposal would modify congestion and electricity nomination frameworks as well. If adopted, these changes could alter contractual structures relevant to electricity importers compared with current-law assumptions. The legislative process progressed through adoption of a Council negotiating position on 12 June 2026 and a European Parliament position on 15 September 2026.
Despite this progress, the proposal remains under interinstitutional negotiation and has not become enacted law. For financing and contract administration under current rules, consistency remains central between transfer of title, payment obligations, and evidence supporting CBAM treatment of electricity.