The CBAM free allocation adjustment, the FAA, is the deduction that mirrors EU ETS free allocation for imported goods. Commission Implementing Regulation (EU) 2025/2620, adopted 16 December 2025, sets out the method, and the rules have applied since 1 January 2026. The adjustment cuts the number of CBAM certificates an authorised declarant must surrender, in step with the free allocation that EU producers of the same goods still receive. The quantity behind it is SEFA, the specific embedded free allocation: the free allocation embedded in one tonne of a good, expressed in tonnes of CO2e per tonne.
The adjustment is why the definitive regime starts gently. EU producers in CBAM sectors retain 97.5 percent of their free allocation in 2026, the FAA mirrors that for imports, and covered goods therefore face roughly 2.5 percent of their gross certificate obligation this year. That share rises every year to 100 percent in 2034 as free allocation is withdrawn, which is what turns a small 2026 cost into a large 2030 one on the same emissions.
Key takeaways
- The rule: Implementing Regulation (EU) 2025/2620 sets the methodology for the free allocation adjustment referred to in Article 31 of Regulation (EU) 2023/956.
- The formula: the FAA for a good equals its SEFA for the year multiplied by the total mass of that good imported during the reporting year.
- The effect in 2026: with 97.5 percent of free allocation retained on the EU side, imports face about 2.5 percent of the gross obligation.
- The trajectory: the payable share climbs from 2.5 percent in 2026 to 100 percent in 2034 as free allocation phases out.
- Where it lands: the FAA is included in the annual CBAM declaration, first due 30 September 2027, and certificate sales open 1 February 2027.
What the free allocation adjustment is, read from the rules
Regulation (EU) 2023/956 prices the embedded emissions of covered imports, and its Article 31 provides that the certificates to be surrendered are adjusted to reflect the free allocation still granted to EU installations producing the same goods. Implementing Regulation (EU) 2025/2620 supplies the method. It defines the free allocation adjustment as the adjustment to the number of CBAM certificates, and the specific embedded free allocation as the free allocation embedded in a good, per tonne, in tonnes of CO2e.
The logic runs parallel to the emissions side of the mechanism. Embedded emissions determine the gross obligation; the FAA then removes the share of that obligation which EU production of the same good does not pay either, because it still receives free allowances under the EU ETS. Both figures travel through the same document: the authorised CBAM declarant states the FAA in the annual CBAM declaration, and the certificates surrendered are the net of the two.
The regulation entered into force in December 2025 and applies from 1 January 2026, so the adjustment covers the first definitive-period year in full. There is no separate claim and no application: the adjustment is part of how the declaration is calculated.
The formula: SEFA times imported mass
The core of Implementing Regulation (EU) 2025/2620 is one line. For each good, the free allocation adjustment equals the specific embedded free allocation of that good for the year, multiplied by the total mass of the good imported during the reporting year. Everything else in the regulation explains how SEFA itself is derived.
| Term | What it means |
|---|---|
| FAA | Free allocation adjustment: the deduction from the CBAM certificates to be surrendered, per good, per year. |
| SEFA | Specific embedded free allocation: free allocation embedded in one tonne of the good, in tonnes of CO2e per tonne. |
| CBAM benchmarks | Product benchmarks derived from the EU ETS free allocation benchmarks for the corresponding production routes. |
| CBAM factor | The phase-out factor from Article 10a(1a) of Directive 2003/87/EC: 97.5 percent in 2026, declining to zero as CBAM phases in. |
| Cross-sectoral correction factor | The EU ETS correction applied so the adjustment tracks what EU installations actually receive. |
With actual production data, SEFA is calculated from the installation’s production process using the CBAM benchmarks, scaled by the CBAM factor and the cross-sectoral correction factor. Where the declaration rests on default values for the specific embedded emissions, the adjustment is calculated instead from predefined default CBAM benchmarks matched to the same production routes and precursor assumptions as the emission defaults, so the two sides of the declaration stay consistent.
The payable share, 2026 to 2034
Because the FAA mirrors EU free allocation, the share of embedded emissions an importer actually pays follows the free allocation phase-out schedule:
| Year | Payable share |
|---|---|
| 2026 | 2.5 percent |
| 2027 | 5 percent |
| 2028 | 10 percent |
| 2029 | 22.5 percent |
| 2030 | 48.5 percent |
| 2031 | 61 percent |
| 2032 | 73.5 percent |
| 2033 | 86 percent |
| 2034 | 100 percent |
The certificate mechanics around the table: one CBAM certificate corresponds to one tonne of CO2e; purchases open on the central platform on 1 February 2027; the price follows the EU ETS as a quarterly average of auction clearing prices in 2026 and a weekly average from 2027. The published figures so far are EUR 75.36 for Q1 2026, published 7 April 2026, and EUR 75.28 for Q2 2026, published 6 July 2026; the figure moves each quarter. At the end of each quarter the certificates on a declarant’s registry account must cover at least 50 percent of the embedded emissions of everything imported since the start of the year, and the first annual declaration, covering 2026 imports, is due 30 September 2027.
The practical reading of the ramp: a certificate bill that looks negligible at 2.5 percent in 2026 is nearly twenty times larger by 2030 on identical emissions, before any change in the certificate price. Cost planning that starts from the 2026 figure alone understates the exposure the regulation has already scheduled.
Two default systems, kept apart
The definitive regime now carries two separate default frameworks, and they pull in opposite directions. Implementing Regulation (EU) 2025/2621 supplies country of origin default values for the embedded emissions; those defaults carry a mark up of 10 percent in 2026, 20 percent in 2027 and 30 percent from 2028, held at a flat 1 percent for fertilisers, so they inflate the gross obligation. Implementing Regulation (EU) 2025/2620 supplies default CBAM benchmarks for the free allocation adjustment; those feed the FAA, which reduces the certificates to surrender.
Read together, the two frameworks reward the same choice. Verified actual installation data lowers the emissions base by escaping the mark up, and the FAA then reduces what remains. An exporter that can evidence actual emissions data positions its EU buyers on the lowest lawful certificate count, and the gap against defaults widens every year as both the mark up and the payable share climb. The default versus actual position for a specific product and volume can be estimated year by year in the free CBAM cost calculator.
What the adjustment means for an exporter to the EU
The FAA belongs to the EU importer’s declaration, but its consequences reach the exporting installation. The certificates an EU buyer surrenders are a function of the embedded emissions of the goods and the adjustment; between two suppliers of the same product, the one whose verified emissions run lower delivers the smaller net certificate bill, in every year of the ramp.
Preparation on the exporter side is the same work the rest of the regime rewards: a fixed and documented monitoring approach, source level records that reconcile, and a quantified default versus actual cost position per product line. GreenSutra works on that preparation side as a CBAM consultant: exposure assessment, embedded emissions calculation, supplier data collection and declaration ready reporting. Verification of the declared data belongs to the independent accredited verifier, and the two roles are deliberately separate under the EU rules.
The free allocation adjustment, answered
What is SEFA in CBAM?
SEFA is the specific embedded free allocation: the free allocation embedded in one tonne of a good, expressed in tonnes of CO2e per tonne, defined by Implementing Regulation (EU) 2025/2620. It mirrors the free allocation EU producers of the same good still receive under the EU ETS and feeds the free allocation adjustment that reduces the CBAM certificates an importer must surrender.
How is the CBAM free allocation adjustment calculated?
For each good, the free allocation adjustment equals the specific embedded free allocation of the good for the year multiplied by the total mass of the good imported during the reporting year. SEFA itself is derived from CBAM benchmarks based on the EU ETS free allocation benchmarks, scaled by the CBAM factor of Directive 2003/87/EC and the cross-sectoral correction factor. Where the declaration uses default values, predefined default CBAM benchmarks apply instead.
Why do importers pay only 2.5 percent of CBAM emissions in 2026?
EU producers in CBAM sectors retain 97.5 percent of their EU ETS free allocation in 2026, and the free allocation adjustment mirrors that allocation for imports. The payable share of embedded emissions therefore starts at about 2.5 percent in 2026 and rises each year as free allocation is withdrawn: 5 percent in 2027, 10 percent in 2028, up to 100 percent in 2034.
Does the free allocation adjustment make CBAM cost free?
No. The adjustment only mirrors the free allocation that EU production still receives, and that allocation is being withdrawn on a fixed schedule. The payable share climbs from 2.5 percent in 2026 to 100 percent in 2034, so the same embedded emissions cost roughly twenty times more by 2030 than in 2026 before any movement in the certificate price.
The adjustment rewards prepared data. A CBAM readiness review fixes the monitoring approach, reconciles the records and quantifies the default versus actual position while the payable share is still small. Start with the CBAM solutions page or estimate exposure in the free CBAM cost calculator.