In mid-July, the European Commission proposed reforming the EU's Emissions trading System (ETS) to better align climate and industrial realities. However, although the proposed changes to the "CBAM ratio" will eventually reduce the obligations under this instrument, the initial costs still remain prohibitively high for many steel trading routes.
It has been proposed to change the "CBAM coefficient" — the phased replacement of free distribution in the EU to address carbon leakage problems — and reintroduce 15% of EUAS quotas as a buffer, extending the trajectory of reducing free distribution until 2038.
The ETS disposal coefficient at the free distribution stage ("CBAM coefficient") is proposed
,Source: The European Commission's July proposal to review the ETS.
Other elements of the Commission's proposals include adjusting the ETS mechanisms, such as the linear reduction coefficient and the market stability reserve, in order to prevent carbon prices and volatility from rising above the level that domestic industry can handle while continuing to decarbonize its processes without unduly compromising global competitiveness.
Despite this, in accordance with these changes, CAMIRO's short- and long-term forecasts still point to a gradual increase in carbon prices in the European Union: they will exceed 200 euros after 2033, and higher prices are expected in 2026-2027, which corresponds to an increase above 80 euros after revision.
In addition to the impact on prices in the European Union, as McCloskey detailed ahead of the July ETS review, CBAM already faces extremely high costs when using default emission values, especially in countries with recent problems such as Indonesia. Trade sources also fear that the new and strengthened EU tariff quota regime for steel imports may reduce exporters' willingness to invest in the monitoring, reporting and verification (MRV) processes required to provide "actual" emissions values in CBAM declarations due to reduced market access, which will further increase financial risks.
This week, the International Institute for Sustainable Development (IISD) released a report titled "The State of Cross-Border Carbon Regulation in 2026," which notes that companies are already facing less obvious compliance costs related to necessary investments in IT infrastructure, supply chain data collection, and verification requirements, which are particularly burdensome.
The IISD also monitors the development of cross-border carbon regulation (BCA) mechanisms around the world, as jurisdictions