Electricity traders are expected to model two regulatory scenarios in parallel: the definitive EU Carbon Border Adjustment Mechanism (CBAM) rules for imports and the proposed changes set out in COM(2025) 989. Keeping the scenarios separate supports contract pricing, regulatory exposure management, and prevents adjustments to existing transactions based on future assumptions.
Definitive CBAM electricity coverage from 1 January 2026
The definitive CBAM regime has been in effect since 1 January 2026. Electricity is covered under CN 2716 00 00, and the mass-based de minimis exemption introduced through the 2025 simplification does not exempt electricity imports from the mechanism.
When using actual electricity emissions under current legislation, traders must meet cumulative requirements. These include a narrowly defined physical power purchase agreement (PPA) structure and applicable network, congestion, and nomination tests. Traders are required to evaluate these conditions against the rules currently in force.
Proposed reform elements under COM(2025) 989
The reform proposal would change how electricity is treated under CBAM. The proposed updates include the methodology for electricity default values, elements of the conditions for using actual emissions values, and a broader concept of physical PPAs that can involve intermediaries.
The proposal also includes changes to the congestion and nomination framework. The Council of the EU adopted its negotiating position on 12 June 2026, followed by the European Parliament on 15 September 2026. As of now, the proposal remains under interinstitutional negotiation and has not been enacted law.
Contract modelling for current-law versus reform scenarios
Traders, independent power producers (IPPs), and lenders are expected to maintain separate current-law and reform scenarios in their financial models and contracts. The reform scenario can be used to assess potential future opportunities, but it is not intended as a legal basis for transactions governed by existing rules.
Change-in-law clauses are described as needing precise triggers for pricing or obligation changes. The trigger should reference adoption, publication, and application of the relevant legal rule where appropriate, rather than relying on a political agreement, committee vote, or press release.
Legal basis continuity for historic imports
Historic imports should keep the legal basis applicable during the period when they occurred. This applies even if reporting systems and commercial models are updated after those imports. Contractual mechanisms should enable adjustments for future transactions when rules change without rewriting earlier import treatment retrospectively.
The same approach is noted as relevant for steel and aluminium businesses. A proposed 2028 downstream expansion is identified as commercially relevant for investment planning, while the final product list remains unsettled. It is therefore not presented as binding legislation before adoption.
Regulatory watchlist milestones for CBAM implementation
A regulatory watchlist is described as tracking specific legal milestones rather than relying on expectations. The items include adoption of the final regulation, official publication of adopted legislation, entry into force and dates of application, and changes to implementing rules and procedures.
The watchlist also includes updates to electricity default values and related acts. Negotiating texts and press reports may indicate possible future changes, but they should not automatically trigger repricing of historic trades or be treated as regulatory approval.
For policy-sensitive investments, flexibility for reform is described alongside continued adherence to current-law controls until an adopted and applicable rule changes them. Markets can price the option value of future regulatory changes, while legislative expectations remain distinct from the rules currently applying.