The CBAM Mark-up Penalty: Cost Impact From 2026 to 2028 and How to Avoid It

The CBAM mark-up penalty is a penalty mechanism that discourages the use of default values and forces producers to collect actual data from their suppliers. Starting at 10% in 2026, this increase rises to 30% for 2028 and beyond. In this article we examine how the mark-up penalty works, walk through concrete calculation examples and look at how CFOs can avoid this cost.

What Is the Mark-up Penalty?

In the EU CBAM regulation, the mark-up penalty is the additional cost applied when default values are used in the embedded emission calculation. Default values are the sector averages published by the European Commission for cases where actual data cannot be obtained from suppliers. These averages are generally higher than actual data, because the Commission takes a conservative approach and bases them on a worst-case scenario.

The mark-up penalty is designed to financially discourage the use of default values and steer producers towards collecting actual data from the supply chain. The logic is simple: collecting actual data creates an operational burden, but the cost of that burden should be lower than the cost of the mark-up penalty.

The Year-by-Year Increase Timeline

The mark-up penalty grows in stages each year:

| Year | Mark-up Rate | Effect | |---|---|---| | 2026 | +10% | 10% is added to the default value | | 2027 | +20% | 20% is added to the default value | | 2028 and after | +30% | 30% is added to the default value and stays fixed |

This increase gives producers a reasonable transition period to comply, while aiming to create a fully deterrent effect from 2028 onwards. 2028 is also a turning point in the CBAM phase-in timeline.

The Fertiliser Sector Exception

The fertiliser sector is an exception to the general rule above. For the production of ammonia, nitric acid and compound fertilisers, the mark-up penalty is applied at a fixed +1% in all years. This exception was granted because of the fertiliser sector's special production conditions and its critical importance for food security. Note: The fertiliser sector was initially planned to be subject to the same mark-up rate of up to 30% as other sectors; due to concerns about the impact on agriculture, it was revised to 1% in the final text.

Unlike other sectors, fertiliser producers face only a 1% additional cost when they use default values. Misreading this exception is dangerous, however; the fertiliser sector is also subject to the 80% actual data rule, and the low mark-up does not remove the obligation to collect data.

Calculation Examples

To translate theory into practice, examining concrete examples is the most illustrative approach.

Example 1: An EAF Carbon Steel Producer

An electric arc furnace (EAF) producer makes 100,000 tonnes of carbon steel per year. It can obtain actual emission data from only 60% of its suppliers and uses default values for the remaining 40%.

The product's SEE with actual data: 0.28 tCO₂/tonne (based on actual supplier data) The default-value SEE: 0.40 tCO₂/tonne (the European Commission's conservative default)

Calculation:

• Actual-data portion (60,000 tonnes): 60,000 × 0.28 = 16,800 tCO₂
• Default-value portion (40,000 tonnes): 40,000 × 0.40 = 16,000 tCO₂
• Gross total emissions: 32,800 tCO₂

In 2026, a 10% mark-up is applied for the use of default values:

• Mark-up added portion: 16,000 × 10% = 1,600 tCO₂ extra
• Adjusted total emissions: 32,800 + 1,600 = 34,400 tCO₂

If the same producer continues in 2028 with the same supplier profile:

• Mark-up added portion: 16,000 × 30% = 4,800 tCO₂ extra
• Adjusted total emissions: 32,800 + 4,800 = 37,600 tCO₂

The impact of the mark-up penalty alone has risen to 3,200 tCO₂ per year. To understand its financial impact, it must be multiplied by the ETS carbon price and the CBAM factor.

Example 2: Converting to Financial Impact in 2028

Let's isolate the financial impact of the mark-up penalty for the EAF producer above in 2028. Assumptions:

• EU ETS carbon price: 100 EUR/tCO₂
• 2028 CBAM factor: 0.100 (the phase-in factor, 10%), per Article 31 of EU Regulation 2023/956
• Extra emissions from the mark-up: 4,800 tCO₂ (30% added to the default-value portion of 40,000 tonnes)

Without mark-up (32,800 tCO₂):

• Gross carbon cost: 32,800 × 100 = 3,280,000 EUR
• Net CBAM cost: 3,280,000 × 0.100 = 328,000 EUR

With mark-up (37,600 tCO₂):

• Gross carbon cost: 37,600 × 100 = 3,760,000 EUR
• Net CBAM cost: 3,760,000 × 0.100 = 376,000 EUR

The difference arising from the mark-up penalty alone: 376,000 - 328,000 = 48,000 EUR (per year for this producer).

This is the 2028 figure. As the CBAM factor rises in later years, the financial impact of the same mark-up difference increases dramatically:

• 2030 (CBAM factor 0.485): 4,800 × 100 × 0.485 = 232,800 EUR/year
• 2032 (CBAM factor 0.735): 4,800 × 100 × 0.735 = 352,800 EUR/year
• 2034 (CBAM factor 1.000): 4,800 × 100 × 1.000 = 480,000 EUR/year

Example 3: Cumulative Mark-up Impact 2026-2034

What is the total nine-year mark-up cost for the same producer if it continues without solving the mark-up problem? Assuming the carbon price stays fixed at 100 EUR:

| Year | CBAM Factor | Mark-up % | Extra Emissions (tCO₂) | Annual Mark-up Cost | |---|---|---|---|---| | 2026 | 0.025 | +10% | 1,600 | 4,000 EUR | | 2027 | 0.050 | +20% | 3,200 | 16,000 EUR | | 2028 | 0.100 | +30% | 4,800 | 48,000 EUR | | 2029 | 0.225 | +30% | 4,800 | 108,000 EUR | | 2030 | 0.485 | +30% | 4,800 | 232,800 EUR | | 2031 | 0.610 | +30% | 4,800 | 292,800 EUR | | 2032 | 0.735 | +30% | 4,800 | 352,800 EUR | | 2033 | 0.860 | +30% | 4,800 | 412,800 EUR | | 2034 | 1.000 | +30% | 4,800 | 480,000 EUR | | Total | | | | ~1,947,200 EUR |

Roughly 1.95 million euros of additional cost over nine years, due to the mark-up penalty alone. This figure assumes the ETS carbon price stays constant; in reality, given that the price tends to rise over the years, the impact could be much larger. This calculation also isolates only the mark-up penalty; the additional cost arising because default values are higher than actual values must be calculated separately.

Sector-by-Sector Impacts

Across different CBAM sectors, the impact of the mark-up penalty varies with the product's embedded emission intensity. In sectors with high emission intensity, the same mark-up percentage creates a much larger absolute impact.

Iron and Steel

For hot metal (pig iron), the CBAM 2026 benchmark value is quite high at 1.370 tCO₂/tonne. For EAF carbon steel (scrap-based) it is 0.072 tCO₂/tonne, which is much lower. The same mark-up rate creates a far larger absolute impact for hot metal producers. That is why data collection is critical at integrated facilities producing via the BF-BOF route.

Aluminium

The benchmark for primary aluminium is 1.423 tCO₂/tonne, and 0.091 tCO₂/tonne for secondary aluminium. Recycling-based producers have an advantage over primary producers. But a primary aluminium producer being exposed to the mark-up penalty creates a much larger financial burden.

Cement

The benchmark for grey clinker is 0.666 tCO₂/tonne. The largest emission source in the cement sector is calcination CO₂, and collecting supplier data is not required for that source (it is a direct process emission). For fuel combustion emissions, however, data must be collected from alternative fuel and petroleum coke suppliers.

Hydrogen

For grey hydrogen produced via the SMR method, the benchmark is 5.089 tCO₂/tonne, one of the highest values across all CBAM sectors. For hydrogen producers, the mark-up penalty has one of the largest financial impacts in absolute terms. Obtaining actual methane-leakage data from natural gas suppliers is critical.

Fertilisers

As noted above, the fertiliser sector is protected with a fixed 1% mark-up. But because the ammonia benchmark is 1.522 tCO₂/tonne, the absolute impact is still significant.

How to Avoid the Mark-up Penalty

The only way to eliminate the mark-up penalty is to exceed the 80% actual data threshold and collect all precursor data from suppliers. This goal requires strategic supplier management.

1. Supplier Mapping

The first step is to list all precursor suppliers. This list should include not only direct (Tier 1) suppliers but also sub-suppliers (Tier 2, Tier 3) for important intermediate products. For example, if your iron ore supplier buys the ore from another mine, that mine's supplier should also be added to the map.

2. Setting Priorities

Collecting data from all precursors can be operationally difficult, which makes prioritisation critical. A precursor's priority depends on the following factors:

• Quantity weight: Inputs with a large share of total production come first
• Emission intensity: Collecting data from high-carbon inputs creates more value
• Number of suppliers: Inputs sourced from a single supplier are easy; those sourced from many suppliers are hard

3. Supplier Communication

Requesting data from suppliers is much more than asking for a file by email. The supplier also needs to have its own calculation infrastructure. For small-scale suppliers this is a burden. Here the producer's role is to support its supplier through this process.

A supplier portal or form-based data collection tool makes this process scalable. The supplier connects with one click, enters its own data and is followed up with automatic reminders.

4. Automatic 80/20 Check

Automatically tracking the actual-data ratio in every calculation and providing an instant warning when it drops below the 80% threshold is critical. Doing this tracking manually is both slow and error-prone.

5. Mark-up Simulation

The answer to "if I report with 70% actual data, how much mark-up penalty will I pay in 2028?" is needed to calculate the return on a supplier data collection investment. This simulation shows the CFO which suppliers are most valuable to collect data from.

Practical Recommendations for CFOs

1. Prepare an annual projection: Project your CBAM cost year by year between 2026 and 2034. Show the impact of the mark-up penalty in two scenarios: current state vs full compliance.

2. Don't turn the mark-up into a fixed operating cost line: If you accept the mark-up penalty as an "unavoidable" cost, you will not be able to set aside the budget needed for supplier data collection. Position the mark-up actively as a cost that can be reduced to zero.

3. Run the supplier-investment ROI analysis: A portal investment (10-20K EUR per year) vs the 2028 mark-up penalty (100K+ EUR per year in the example). The ROI usually pays for itself in the first year.

4. Reporting to the board: Report the CBAM cost not as a single line but in three lines: actual-data ratio / mark-up share / net CBAM cost. This keeps the mark-up visible at board level.

5. Contractual arrangements: Add an "emission data provision" clause to supplier contracts. This makes data collection easier in future periods.

Mark-up Tracking With Carbonaz

The Carbonaz platform offers four core capabilities for mark-up penalty management:

Automatic 80/20 check: The actual-data ratio is tracked automatically in every calculation. You are warned when it drops below the threshold, and which suppliers are missing data is immediately visible.

Mark-up simulator: Produces cost projections for different actual-data ratios (50%, 70%, 90%). It generates ready PDF outputs for board presentations.

Supplier portal: Suppliers enter the portal via an invitation link, enter their data, and the system handles tracking automatically. There is no need for manual email follow-up.

Accurate annual mark-up calculation: The rates of +10% in 2026, +20% in 2027 and +30% from 2028 (+1% for fertilisers) are coded correctly in the system. There is no risk of manual error.

Commission Review and Future Revision

In light of the data from the early years of CBAM compliance, the European Commission announced its intention to review default values and mark-up rates by December 2027. This means the current rates of 10%, 20% and 30% could be revised in the future and default values could be updated.

The review aims to address the following concerns:

• Importer criticism that default values are too high in practice in some sectors
• Concerns that an overly aggressive mark-up makes collecting actual data impossible in certain supply chains
• The situation of small importers who cannot bear the burden economically

It is not yet clear, however, exactly when this review will conclude or how it will be revised. For CFOs doing financial planning, the safest approach is to base plans on the current timeline and not rely on the expectation of a less strict one.

Conclusion

The mark-up penalty is one of the most critical financial impact items of CBAM compliance. Starting at 10% in 2026, this increase will reach 30% by 2028 and add a significant burden to annual costs. The absolute impact is especially large in emission-intensive sectors such as iron and steel, aluminium and hydrogen.

The only way to avoid the mark-up is to collect actual data from the supply chain. We cover how this is done in practice in detail in our article on the 80/20 actual data rule. Although this may look like an operational burden, the financial analysis usually shows that the investment pays for itself in the first year. For CFOs and finance teams, CBAM compliance is no longer just a reporting obligation but a cost item that must be actively managed.

Mark-up simulation and year-by-year cost projection come built into the calculation and cost module of Carbonaz. For a detailed cost simulation, you can request a demo call through our contact page. We calculate the 2026-2034 mark-up impact together, based on your company's current data collection ratio.

Sources

• Regulation (EU) 2023/956 - EUR-Lex: the CBAM regulation, including Article 31 (the CBAM factor timeline)
• How the EU's New Default Emissions Values Under CBAM Impact US Exporters - O'Melveny: mark-up rates and default value explanations
• Provisional CBAM benchmarks show high costs on defaults - Eurometal: the sectoral impact of the mark-up
• EU adopts simplifications of CBAM rules - ICAP: the Commission review timeline (December 2027)
• EU CBAM draft sets dual methods for free allowances - Argus Media: context for the fertiliser 1% exception
• Operationalisation and Simplification of the EU CBAM - Herbert Smith Freehills Kramer: details of the 2025 simplification