Brussels, 3 November — EU governments have received an initial compromise text on proposed reforms to the EU Emissions Trading System (EU ETS), advancing negotiations in the Council of the EU without settling contentious issues. The Irish presidency of the Council circulated the draft, which was reported on 2 November.
The text incorporates and clarifies national positions, but the presidency’s compromise is not a final agreement on emissions-trading rules. It is a procedural advance in Council negotiations and does not change legally applicable Carbon Border Adjustment Mechanism (CBAM) obligations.
The EU ETS underpins CBAM, which is designed to reflect the carbon costs borne by European producers. Changes to allowance supply, market-stability arrangements and free allocation can affect the financial relationship between domestic manufacturing and imported goods, particularly in steel, aluminium, cement and fertilisers, where industrial emissions and free-allocation benchmarks influence CBAM liability calculations.
Under the European Commission’s existing methodology, CBAM certificate prices are determined using EU ETS auction results. Prices are calculated quarterly in 2026, with weekly pricing scheduled to begin in 2027. The Irish presidency’s draft neither establishes a new certificate-pricing formula nor adopts a change to free-allocation rules, leaving current arrangements distinct from potential future reforms.
Separately, the EU is negotiating a proposal to extend CBAM to additional downstream products. Legislative file 2025/0419(COD), based on COM(2025)989, proposes measures for downstream industrial goods and mechanisms intended to limit circumvention. The expansion is planned for 2028, but remains subject to the legislative process.
Steel and aluminium processors in Serbia, Montenegro, Bosnia and Herzegovina, and Türkiye face uncertainty over possible coverage changes. The proposal could bring in goods not currently directly subject to CBAM, including selected fabricated components and downstream industrial products whose competitiveness depends on the carbon costs of upstream materials.
Importers and industrial investors need to distinguish current obligations from possible reforms when assessing costs. Banks financing new production facilities should assess current-law CBAM exposure separately from legislative scenarios: treating proposed changes as adopted could overstate costs or distort investment decisions, while ignoring a credible expansion scenario could understate future regulatory and commercial risks.
