Supported by CBAM.Clarion.Engineer
Electricity traders need to maintain two regulatory scenarios in parallel: the rules governing imports under the definitive EU Carbon Border Adjustment Mechanism (CBAM) and the proposed changes set out in COM(2025) 989. Keeping these models separate is essential for pricing contracts, managing regulatory exposure and avoiding premature adjustments to existing transactions.
Current electricity rules remain binding
The definitive CBAM regime has applied since 1 January 2026. Electricity is covered under CN 2716 00 00, and the mass-based de minimis exemption introduced through the 2025 simplification does not exempt electricity imports from the mechanism.
Under current legislation, the use of actual electricity emissions requires compliance with cumulative conditions, including a narrowly defined physical power purchase agreement (PPA) structure and applicable network, congestion and nomination tests. Traders must assess these requirements against the rules currently in force rather than assume that alternative contractual arrangements will qualify under a future framework.
COM(2025) 989 could change electricity pricing
The reform proposal would materially alter electricity treatment under CBAM. Proposed changes include the methodology for electricity default values, aspects of the conditions for using actual emissions values, a broader concept of physical PPAs involving intermediaries, and changes to the congestion and nomination framework.
The Council of the EU adopted its negotiating position on 12 June 2026, followed by the European Parliament on 15 September 2026. The proposal remains under interinstitutional negotiation and has not become enacted law.
Traders, independent power producers (IPPs) and lenders should therefore maintain separate current-law and reform scenarios in their financial models and contracts. The reform scenario can help assess potential future opportunities, but it should not be used as the legal basis for transactions governed by existing rules.
Change-in-law clauses need precise triggers
Contractual change-in-law provisions should identify the event that triggers a change in pricing or obligations. The trigger should refer to the adoption, publication and application of the relevant legal rule, as appropriate, rather than a political agreement, committee vote or press release.
Historic imports should retain the legal basis applicable to the period in which they occurred, even after reporting systems and commercial models have been updated. Contractual mechanisms should allow future transactions to be adjusted when the relevant rules change without retrospectively rewriting the treatment of earlier imports.
The same discipline applies to steel and aluminium businesses. The proposed 2028 downstream expansion is commercially relevant and may influence investment planning, but the final product list remains unsettled. It should not be presented as binding legislation before adoption.
Monitor legal events, not expectations
An effective regulatory watchlist should track specific legal milestones, including:
- Adoption of the final regulation.
- Official publication of the adopted legislation.
- Entry into force and dates of application.
- Changes to implementing rules and procedures.
- Updates to electricity default values and related acts.
Negotiating texts and press reports remain useful indicators of possible future changes, but they should not automatically trigger repricing of historic trades or be treated as regulatory approval.
For policy-sensitive investments, the governing principle is to preserve flexibility for reform while maintaining current-law controls until an adopted and applicable rule changes them. Markets can price the option value of future regulatory changes, but legislative expectations must remain distinct from the rules that currently apply.
