- CBAM pricing to shift to weekly averages from 2027
- Indian HRC faces CBAM costs above EUR 250/t
The European Commission has published the Carbon Border Adjustment Mechanism (CBAM) certificate price for the first quarter of 2026 at EUR 75.36/t ($88.01) of CO2 equivalent (CO2e), providing importers with greater clarity on their exposure to the EU’s carbon leakage framework.
The pricing methodology links CBAM certificate values to the average price of EU Emissions Trading System (ETS) allowances, ensuring alignment between carbon costs faced by domestic producers and foreign exporters. For 2026, prices are calculated based on the quarterly average of ETS auction clearing prices over the period of import, with the Commission set to maintain this approach through the year. From 2027, CBAM pricing will transition to a weekly average ETS-based calculation, with importers required to hold at least 50% of their rolling emissions liability by the end of each quarter.
Hedging activity and market response
In the absence of tradable CBAM certificates, set to be introduced in February 2027, market participants have adopted proxy hedging strategies using EU ETS allowances (EUAs) in the secondary market to manage price risk.
Demand for such hedging instruments, particularly in spot and front-year EUAs, was stronger at the beginning of the quarter but eased towards the end as greater clarity emerged around the CBAM price level.
Market constraints and pricing dynamics
At EUR 75.36/t, the published CBAM price is slightly below industry expectations, reflecting bearish volatility in EUA prices amid growing political scrutiny of the EU ETS and concerns over declining industrial competitiveness.
The non-tradable nature of CBAM certificates limits flexibility for market participants, constraining their ability to actively manage exposure. As a result, firms continue to rely on EUA-based proxy hedging, although this does not fully offset CBAM-related risks. Market participants are increasingly exploring alternative risk management approaches better aligned with primary ETS auction dynamics.
Despite being directly linked to ETS auction prices, CBAM costs remain closely correlated with movements in the spot EUA market, adding further complexity to hedging strategies.
Trade impact and cost implications
At current levels, CBAM costs pose significant challenges, particularly for small and medium-sized importers that rely on default emissions values rather than verified data.
Indian HRC faces comparatively lower, though still substantial, CBAM costs of just over EUR 250/t. EU imports of Indian HRC under code 7208 rose by 350% y-o-y in January to nearly 200,000 t, and were over 230% higher than December volumes.
Market sources indicate that a significant share of these imports has been directed towards EU-based steelmakers for resale or downstream processing.
Policy developments and outlook
The EU has signalled its intention to support India’s transition towards domestic carbon pricing through provisions in the proposed EU–India Free Trade Agreement. These include potential recognition of India’s carbon pricing framework, development of country-specific default emission values, and the possibility of extending accreditation competencies for emissions verification.
Upcoming price announcements
The European Commission has scheduled the release of CBAM certificate prices for the remaining quarters of 2026 as follows:
- Q2 2026: 6 July 2026
- Q3 2026: 5 October 2026
- Q4 2026: 4 January 2027
Outlook
CBAM is set to reshape EU steel trade flows, with high-emission imports facing rising costs and potential volume declines, while lower-emission suppliers like India may gain share. Importers are likely to favour verified low-emission supply chains, disadvantaging smaller players reliant on default values. EUA-based hedging will continue but remain imperfect, exposing participants to ETS volatility.
Overall, trade activity is expected to stay cautious amid pricing uncertainty and compliance costs until improved hedging tools and weekly pricing in 2027 enhance market visibility.
Leave a Reply