EU Carbon Border Adjustment Mechanism CBAM negotiations are progressing while a reform proposal is still under interinstitutional discussion. The Council of the EU and the European Parliament have adopted negotiating positions that could influence how electricity is treated for CBAM purposes. The same legislative file also links to a planned downstream expansion for selected industrial goods.
CBAM electricity coverage and the reform proposal
The definitive CBAM regime has been in application since 1 January 2026. Electricity falls under CN 2716 00 00, and the mass-based de minimis exemption introduced through a 2025 simplification does not remove electricity imports from the mechanism. The reform proposal, COM(2025) 989, sets out changes to electricity treatment.
COM(2025) 989 would modify the methodology for default emissions values for electricity. It also addresses conditions related to using actual emissions values, including elements of how those conditions are framed. The proposal further covers recognition of physical power purchase agreements involving intermediaries.
In addition, the reform proposal includes changes to the congestion and nomination framework relevant to electricity flows. These topics are part of the ongoing negotiations rather than finalised provisions. The outcome will determine how electricity contracting and emissions calculations may evolve under CBAM.
Council and Parliament negotiating positions
The Council of the EU adopted its negotiating position on 12 June 2026. The European Parliament followed with its position on 15 September 2026. After these steps, the file entered interinstitutional negotiations.
The proposal remains subject to agreement and is not enacted law. Differences between the Council and Parliament positions are expected to matter for how far changes extend to electricity trading arrangements. They also affect potential coverage of downstream CBAM obligations tied to industrial products.
Downstream expansion from 2028 for steel and aluminium
The same legislative file proposes a downstream expansion starting in 2028. It targets selected steel- and aluminium-intensive goods under CBAM downstream coverage. Both institutions support broader coverage, but their proposed product lists differ.
The product list remains under negotiation, meaning the final scope is not yet fixed. A wider downstream scope could change demand for lower-carbon industrial inputs linked to these goods. At the same time, revised electricity rules could affect commercial conditions for renewable electricity exports from the Western Balkans.
Renewable energy projects, electricity traders, and steel and aluminium manufacturers are therefore exposed to related investment considerations within the same policy process. The legislative developments connect electricity treatment with downstream industrial demand through CBAM-related requirements.
Valuation approach and change-in-law triggers
For renewable energy sources (RES) investors, developments can be reflected in valuation scenarios as potential upside. The source material specifies that expected regulatory benefits should not be treated as established revenue before relevant legal provisions are adopted and applicable. This distinction applies when modelling future cash flows tied to CBAM-related rules.
Project valuations can incorporate the possibility of future regulatory changes without relying on them for base financing assumptions. Lenders can assess potential upside through sensitivity analysis while keeping debt assumptions anchored in current law, existing customer demand, and demonstrable project economics.
Contractual change-in-law provisions should set out precise triggers, including adoption, publication, and application of the relevant rules. Political agreements, committee votes, and press releases should not automatically trigger repricing under these provisions. Historic imports should retain the legal basis applicable to their reporting period even after systems and contracts are updated.
Milestones for monitoring CBAM implementation
An event-based regulatory watchlist is framed around specific legal milestones. Investors are directed to monitor adoption of the final regulation as well as official publication and dates of application. They also track changes to implementing rules and procedures.
The watchlist includes publication or revision of applicable electricity default values under CBAM. It also covers final decisions on the downstream product list for steel- and aluminium-intensive goods proposed from 2028. Negotiating texts and public announcements can inform scenario planning but do not replace enacted legislation for compliance purposes.
The approach described for policy-sensitive renewable investments is to preserve flexibility for reform while maintaining current-law controls until an adopted rule changes them. Regulatory probability can inform valuation modelling, but proposed law should not be treated as an operative compliance requirement or a guaranteed source of future revenue.