The free allocation adjustment for a good equals its specific embedded free allocation for the year multiplied by the total mass imported during the year the declaration covers (Equation 1, Annex of Implementing Regulation (EU) 2025/2620). SEFA comes from CBAM benchmarks scaled by the CBAM factor and the cross-sectoral correction factor, and the resulting FAA reduces the certificates to surrender.
Commission Implementing Regulation (EU) 2025/2620, adopted 16 December 2025 and applying from 1 January 2026, sets the methodology for the free allocation adjustment referred to in Article 31 of Regulation (EU) 2023/956. Two defined terms carry the calculation. FAA, the free allocation adjustment, is the adjustment to the number of CBAM certificates to be surrendered. SEFA, the specific embedded free allocation, is the free allocation embedded in one tonne of a good, expressed in tonnes of CO2e per tonne.
The formula
Equation 1 in the Annex sets the rule: FAAg = SEFAg,y x Mg. The free allocation adjustment for a good equals its specific embedded free allocation for the year multiplied by the total mass of that good imported during the year the declaration covers.
| Term | Meaning |
|---|---|
| FAAg | Free allocation adjustment for good g |
| SEFAg,y | Specific embedded free allocation for good g in year y, in t CO2e per tonne |
| Mg | Total mass of good g imported during the year the declaration covers |
Where SEFA comes from
With actual data, Annex point 3 calculates SEFA from the production process using CBAM benchmarks derived from EU ETS free-allocation benchmarks, scaled by the CBAM factor set in Article 10a(1a) of Directive 2003/87/EC and by the cross-sectoral correction factor. Where default values are used for the specific embedded emissions in the declaration, Annex point 4 applies predefined default CBAM benchmarks matched to the same production routes and precursor assumptions as the emission defaults.
The declarant includes the FAA in the annual CBAM declaration, and it reduces the certificates to be surrendered. The adjustment mirrors the free allocation EU producers of the same good still receive. The declarant surrenders certificates for the embedded emissions minus the FAA, and minus any carbon price deduction, never below zero. With default values, Equation 6 gives SEFA = CBAM factor x cross-sectoral correction factor x default CBAM benchmark, and the correction factor is 100 per cent for 2026 to 2030.
The deduction shrinks each year, so the adjustment is never permanent relief. The CBAM factor is 97.5 per cent in 2026, 95 per cent in 2027, 90 per cent in 2028 and 77.5 per cent in 2029. It falls to 51.5 per cent in 2030, 39 per cent in 2031, 26.5 per cent in 2032 and 14 per cent in 2033. From 2034 nothing is deducted for free allocation. In 2026, 2.5 per cent of the benchmark is no longer deducted. That figure is not 2.5 per cent of the embedded emissions.
Example: one tonne of Indian hot-rolled flat steel (CN 7208) imported in the third quarter of 2026 on default values. The default value of 4.280 tonnes of CO2e, with the 10 per cent mark-up, gives 4.708. The free allocation adjustment is 0.975 x 1.00 x 1.370, or 1.336. The declarant surrenders 4.708 minus 1.336, or 3.372 certificates, about EUR 278 at the third-quarter 2026 price of EUR 82.32.
GreenSutra’s CBAM consultants model the FAA alongside certificate prices when planning certificate budgets for importers. CBAM advisory covers embedded-emissions calculation, declaration preparation and certificate cost planning, and the CBAM cost calculator gives a first estimate of net certificate exposure.
Sources: Implementing Regulation (EU) 2025/2620 · Regulation (EU) 2023/956 · European Commission CBAM