According to Rob McLeod, head of energy price risk management at global trading house Hartree Partners, some traders use swaps to hedge volatile carbon prices in the EU, as the mechanism for regulating the bloc's carbon borders creates new risks for importers of carbon-intensive goods.
This derivative instrument allows buyers to set fixed prices for CBAM certificates in advance, providing direct hedging against price fluctuations in the underlying EU quota market.
"CBAM swaps provide a clean and direct hedge, but require a line of credit," McLeod said at a webinar on March 3. "Swap is a simple tool for fixing a fixed price level in advance."
There have been dramatic changes in the European Union in recent weeks, as policy makers increasingly focus on the economic damage from the emissions trading system, leading to a drop in market confidence.
"The countries of the European Union can be extremely unstable, even in the short term. We can observe fluctuations of 20-30 euros per ton for 30-60 days. This is not uncommon, which makes hedging more necessary," McLeod added.
Fuel prices in the EU have fallen by more than 20 euros per metric ton of CO2 equivalent in recent weeks after several member states called for easing the EU FTAs to boost the competitiveness of the bloc's industry. On March 2, Platts, a member of S&P Global Energy, estimated the EUAS under the December 2026 contract at 73.80 euros per ton of CO2e.
Hedging strategies
CBAM swaps are derivative instruments that allow buyers to fix the forward prices of CBAM certificates. According to the structure, buyers agree to a fixed price and are settled in cash at the end of the contract term at the CBAM index price.
On January 1, 2026, the EU CBAM program entered its final phase, marking the introduction of the world's first operational carbon border tax.
The CBAM swap market is showing signs of growing liquidity, and according to McLeod, significant volumes are already being traded daily.
Hartree Partners is an active participant in the EU ETS and is influenced by the CBAM block, and also actively insures the EU against compliance with CBAM requirements.
This hedging strategy is used by exporters and importers of goods subject to CBAM certificates to manage the risks associated with CBAM certificates.
Importers of carbon-intensive goods from six sectors — aluminum, cement, electricity, fertilizers, cast iron and steel, as well as hydrogen - are now financially responsible for the emissions associated with their products.,
