The Irish presidency of the Council of the EU has circulated an initial compromise text on proposed reforms to the EU Emissions Trading System (EU ETS), which EU governments received as negotiations advance. The document was reported on 2 November; the account was datelined Brussels, 3 November.
The draft incorporates and clarifies national positions but leaves politically contentious issues unresolved. It marks progress in the Council’s internal negotiations, not an agreement on final emissions-trading rules, and does not change legally applicable Carbon Border Adjustment Mechanism (CBAM) obligations.
The EU ETS underpins CBAM, which is designed to reflect the carbon costs borne by European producers. Changes to allowance supply, market-stability arrangements and free allocation can affect the financial relationship between domestic manufacturing and imported goods. The issue is particularly relevant to steel, aluminium, cement and fertilisers, where industrial emissions and free-allocation benchmarks influence CBAM liability calculations.
Under the European Commission’s existing methodology, CBAM certificate prices are set using EU ETS auction results. Prices are calculated quarterly in 2026, with weekly pricing scheduled to begin in 2027. The Irish presidency’s draft does not establish a new certificate-pricing formula or adopt changes to free-allocation rules.
Separate proposal would extend product coverage
The EU is also negotiating a separate proposal to expand CBAM to additional downstream products. Legislative file 2025/0419(COD), based on COM(2025)989, proposes measures covering downstream industrial goods and mechanisms intended to limit circumvention. The expansion is planned for 2028 but remains subject to the legislative process.
Steel and aluminium processors in Serbia, Montenegro, Bosnia and Herzegovina, and Türkiye face uncertainty over possible changes to CBAM coverage. The proposal could include goods not currently directly subject to the mechanism, such as selected fabricated components and downstream industrial products whose competitiveness depends on the carbon costs of upstream materials.
Importers and industrial investors need to separate current obligations from potential future reforms when assessing costs. Banks financing new production facilities should assess current-law CBAM exposure separately from legislative scenarios. Treating proposed reforms as adopted could overstate costs or distort investment decisions, while ignoring a credible expansion scenario could understate future regulatory and commercial risks.