Supported by CBAM.Clarion.Engineer
Renewable energy investors need to account for the direction of EU Carbon Border Adjustment Mechanism (CBAM) negotiations even before the proposed reforms become law. The positions adopted by the Council of the EU and the European Parliament provide important inputs for assessing potential changes to electricity contracting, emissions default values and demand for lower-carbon downstream industrial products.
Negotiating positions shape future investment scenarios
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 remove electricity imports from the mechanism.
The reform proposal, COM(2025) 989, would change electricity treatment, including the methodology for default emissions values, aspects of the conditions for using actual emissions values, the recognition of physical power purchase agreements (PPAs) involving intermediaries, and 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 file has entered interinstitutional negotiations, but the proposal remains subject to agreement and must not be treated as enacted law.
Differences between the institutions’ positions matter for investors because the final provisions will determine the extent of changes to electricity trading arrangements and the potential reach of downstream CBAM coverage.
Renewable electricity and industrial demand are connected
The same legislative file proposes a downstream expansion from 2028 for selected steel- and aluminium-intensive goods. Both institutions support broader coverage, although their proposed product lists differ and remain under negotiation.
A wider downstream scope could affect demand for lower-carbon industrial inputs, while revised electricity rules could alter the commercial conditions for renewable electricity exports from the Western Balkans. Renewable energy projects, electricity traders and steel and aluminium manufacturers therefore face related investment considerations within the same policy process.
For renewable energy sources (RES) investors, these developments can be incorporated into valuation scenarios as potential upside. However, expected regulatory benefits should not be recognised as established revenue before the relevant legal provisions are adopted and applicable.
Keep the debt case anchored in current law
Project valuations can reflect the possibility of future regulatory changes without relying on them to support the base financing case. Lenders can assess potential upside through sensitivity analysis while maintaining debt assumptions based on current law, existing customer demand and demonstrable project economics.
Contractual change-in-law provisions should identify precise triggers, including adoption, publication and application of the relevant rules. Political agreements, committee votes and press releases should not automatically trigger repricing. Historic imports should retain the legal basis applicable to their reporting period, even after systems and contracts are updated.
An event-based regulatory watchlist
Investors should monitor specific legal milestones:
- Adoption of the final regulation.
- Official publication and dates of application.
- Changes to implementing rules and procedures.
- Publication or revision of applicable electricity default values.
- Final decisions on the downstream product list.
Negotiating texts and public announcements can inform scenario planning, but they do not replace enacted legislation for compliance purposes.
For policy-sensitive renewable investments, the central principle is to preserve flexibility for reform while maintaining current-law controls until an adopted rule changes them. Regulatory probability can inform valuation, but proposed law should not be treated as an operative compliance requirement or a guaranteed source of future revenue.
