Ministers divided, leaders cautious: the ETS reform that sets CBAM's pace inches forward

Last week we set out the Commission's proposal to keep free allowances for CBAM sectors until 2038, four years longer than current law. This week the proposal met its two political audiences. Environment ministers debated it on 12 October, and EU leaders discussed industrial competitiveness at the European Council on 15 and 16 October. Neither settled anything, but both revealed the direction of travel.

The Environment Council: divided on ambition

Ministers held a policy debate in Luxembourg on 12 October, structured around a Presidency paper that named three open questions: the overall level of ambition, the distribution of funds, and which sectors the system should cover. The CBAM phase-in sits under the first. Reports from the meeting describe ministers split over free allowances, with a majority backing a dedicated solution for exports from CBAM sectors, and Czechia and Italy pressing for an industry-focused overhaul that would also suspend the ETS2 system for buildings and transport.

The export question matters for CBAM's shape. Free allocation for exports and a border charge on imports are two halves of the same leakage argument, and a majority of member states now appear to want the export half answered in this reform.

The European Council: predictability, not pause

The Italy and Czechia paper we reported on 7 October had asked leaders to suspend the free allocation phase-out outright. The conclusions adopted on 15 October stop well short of that. Leaders stressed the urgent need for a predictable carbon market that supports industrial competitiveness and guards against carbon leakage, asked for faster work on the market stability reserve legislation to moderate price volatility, welcomed an extension of the state aid framework for exposed industries, and asked the Commission to update its assessment of ETS2. They kept, in the same breath, a market-based carbon price signal as the driver of investment. Suspension did not make the text.

Industry keeps pushing. On the day of the ministers' debate, European Aluminium called for the free allocation phase-out to be put on hold until CBAM is shown to work and an export solution is in place.

The timetable and the price

The Irish presidency wants a Council negotiating position at the December Environment Council, and Parliament's rapporteur expects positions by the end of the year, with negotiations between the institutions from January 2027. Leaders have committed to completing the revision by the first quarter of 2027.

While the politics runs, the price that CBAM imports is rising. The EU ETS auctions held between 1 and 12 October average about 84.76 euros per tonne, weighted by volume, which is 2.44 euros above the published Q3 certificate price of 82.32 euros. If the quarter holds near that level, the fourth-quarter certificate price will be the highest yet.

What to do

Nothing in October changed the law. Keep 2026 and 2027 budgets on the current schedule, where the CBAM factor is 97.5 per cent this year and 95 per cent next. For 2028 onwards, keep running two scenarios, one with free allocation ending in 2034 and one with it lasting to 2038, and treat December's Council position and Parliament's vote as the next points at which the odds shift. Importers budgeting fourth-quarter consignments should use the mid-80s as a working range rather than the Q3 figure.

CBAM-Assured helps importers build cost forecasts that separate the certificate price, the CBAM factor and the free allocation politics into assumptions you can update; contact us to pressure-test yours.

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