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 resolving politically contentious issues. The Irish presidency of the Council circulated the draft, which was reported on 2 November in an account datelined Brussels, 3 November. It incorporates and clarifies national positions but is not an agreement on final emissions-trading rules. The document is a procedural advance 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. The implications are particularly relevant to steel, aluminium, cement and fertiliser production, where industrial emissions and free-allocation benchmarks influence CBAM liability calculations.
Under the European Commission’s existing methodology, CBAM certificate prices are set using EU ETS auction results. Prices are calculated quarterly in 2026, while weekly pricing is scheduled to begin in 2027. The Irish presidency’s draft does not establish a new certificate-pricing formula or adopt a change to free-allocation rules, so current arrangements remain distinct from possible future reforms.
Separately, the EU is negotiating a proposal to expand CBAM to additional downstream products. Legislative file 2025/0419(COD), based on COM(2025)989, proposes measures covering downstream industrial goods and mechanisms intended to limit circumvention. The expansion is planned for 2028, subject to the legislative process.
Steel and aluminium processors in Serbia, Montenegro, Bosnia and Herzegovina, and Türkiye face uncertainty over possible changes to product coverage. The proposal could cover 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 potential 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.