Electricity traders are expected to run two regulatory scenarios in parallel: the definitive EU Carbon Border Adjustment Mechanism (CBAM) import rules and the proposed changes in COM(2025) 989. Keeping the models separate is intended to support contract pricing and regulatory exposure management. It also helps avoid adjustments to existing transactions based on future developments.
Definitive CBAM electricity coverage applies from 1 January 2026
The definitive CBAM regime has been in effect since 1 January 2026. Electricity falls 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. Traders therefore need to treat electricity imports as covered under the applicable CBAM framework.
When using actual electricity emissions under current legislation, cumulative conditions must be met. These include a narrowly defined physical power purchase agreement (PPA) structure and network, congestion, and nomination tests. Traders are required to evaluate these requirements against the rules currently in force rather than rely on alternative contractual arrangements that may fit a future framework.
COM(2025) 989 proposes changes affecting electricity treatment
The reform proposal would change how electricity is treated under CBAM. COM(2025) 989 includes elements such as the methodology for electricity default values and conditions related to using actual emissions values. It also proposes a broader concept of physical PPAs that can involve intermediaries.
COM(2025) 989 further addresses changes to the congestion and nomination framework used for electricity. 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.
Contract modelling and change-in-law triggers for CBAM electricity
Traders, independent power producers (IPPs), and lenders are expected to maintain separate current-law and reform scenarios in financial models and contracts. The reform scenario can be used to assess potential future opportunities. It is not intended to serve as the legal basis for transactions governed by existing rules.
Change-in-law clauses should specify the event that triggers changes in pricing or obligations. The trigger should reference 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 at the time they occurred even if reporting systems and commercial models are updated.
Regulatory monitoring milestones for electricity default values
An effective regulatory watchlist should track specific legal milestones, including adoption of the final regulation and official publication of adopted legislation. It should also cover entry into force and dates of application, along with changes to implementing rules and procedures. For electricity specifically, it should include updates to electricity default values and related acts.
Negotiating texts and press reports can indicate possible future changes, but they should not automatically trigger repricing of historic trades or be treated as regulatory approval. For policy-sensitive investments, current-law controls are expected to remain in place until an adopted and applicable rule changes them. Markets may price option value for future regulatory changes while keeping legislative expectations distinct from rules that currently apply.