CBAM vs EU ETS: How the Two Systems Talk to Each Other

CBAM isn’t a separate carbon price. It’s the EU ETS price, applied to imports. Understand that one fact and the rest of the Regulation reads like a logical puzzle instead of a maze.

This post walks through the peg mechanism, the free-allowance phase-out, the origin-country carbon deduction, and what the whole thing costs under a few realistic scenarios. Working from Regulation (EU) 2023/956 and the 2025 Implementing Regulations that operationalised the definitive phase.

Why CBAM exists — the 30-second version

Domestic EU industry pays for its CO2. Since 2005, the EU Emissions Trading System has required installations in sectors like steel, cement, aluminium, fertilisers and electricity to surrender one allowance per tonne of CO2 emitted. Free allowances soften the blow for trade-exposed sectors, but the residual cost is real — and it was creating carbon leakage, where production moved to countries without a carbon price.

CBAM is the mirror. Pay the same price on the carbon content of imports that domestic producers pay on the carbon content of their output. Level the playing field. The policy rationale is in Recital 9 of the CBAM Regulation and in Recital 12 of Directive 2023/959 (the ETS revision that synchronised the two systems).

The price peg — Article 21

Article 21 CBAM Regulation defines how the certificate price is calculated. For 2026, the price of a CBAM certificate equals the weekly average of the closing prices of EU ETS allowances at the common auction platform (EEX) for the week in question. Since 1 August 2026, the Commission publishes this weekly on the Taxation and Customs Union site.

From 2027 onward, the cadence tightens further — the weekly average becomes the default, with more frequent updates possible by Commission delegated act.

Practical consequence: the cost of a CBAM certificate this week is mechanically the EU ETS auction average of last week. If ETS auctions close at €85 on average, CBAM certificates sold that week cost €85.

What the peg avoids: arbitrage. If CBAM certificates were cheaper than ETS allowances, importing would be cheaper than producing domestically, defeating the policy. If CBAM certificates were more expensive, it would be protectionism and WTO-actionable. The peg keeps them in sync by construction.

The free-allowance phase-out — Article 36(2)

Here’s where the real cost trajectory lives. Under the revised ETS Directive, free allowances for CBAM sectors (steel, aluminium, cement, fertilisers, hydrogen) are phased out over 2026–2034. CBAM applies in proportion — the more free allowances are withdrawn from domestic producers, the higher the share of the full CBAM price that importers owe.

Article 36(2)(b) sets the CBAM phase-in schedule explicitly:

Year	CBAM factor	Meaning
2026	2.5%	Importers pay 2.5% of the full CBAM price
2027	5%
2028	10%
2029	22.5%
2030	48.5%
2031	61%
2032	73.5%
2033	86%
2034	100%	Full price applies; free allocation for domestic industry fully withdrawn

So 2026 is a very, very mild year cost-wise. 2030 is when it starts to bite. 2034 is when it’s on full. Any strategic procurement planning that ignores this trajectory is malpractice.

Origin-country carbon deduction — Article 9

Here’s the part that surprises most people. Under Article 9, if the imported goods have already borne an effective carbon price in the country of origin — an ETS price, a carbon tax, a fee explicitly tied to CO2 emissions — the CBAM certificate obligation is reduced by that amount.

The deduction is calculated per tonne of CO2 and must be supported by a verified statement from an accredited verifier. You can’t just assert that your Turkish supplier paid something; you need a paper trail.

Countries with effective carbon prices that qualify (selected, as of early 2026):

• UK — UK ETS, trading at around €75–€85/t CO2 in 2026.
• Switzerland — Swiss ETS, linked to EU ETS, near-parity pricing.
• Canada — Federal carbon pricing backstop and provincial systems.
• South Korea — KETS, typically €15–€30/t.
• New Zealand — NZ ETS, typically €30–€50/t.
• Norway — CO2 tax, in parallel with EU ETS participation.
• Mexico — Federal carbon tax (modest).
• Türkiye — ETS in pilot; limited price signal in 2026.

The countries that don’t qualify for meaningful deductions — China, India, Russia, Ukraine, most of MENA, most of Sub-Saharan Africa — are where most CBAM cost lands.

Worked example: 500 tonnes of steel, two origin scenarios

Same good, same volume. Different supplier country. Very different cost.

StalHandel sp. z o.o., a Polish steel trader, imports 500 tonnes of hot-rolled coil (CN 7208 10 00) per quarter. Embedded emissions: 2.155 t CO2/t × 500 t = 1,077.5 t CO2. EU ETS average for the quarter: €85/t.

Scenario A: supplier in Türkiye

• Full CBAM value: 1,077.5 × €85 = €91,587.50
• Origin-country deduction: ~€0 (Turkish pilot ETS has no material price on steel in 2026)
• 2026 CBAM factor: 2.5%
• 2026 cost: €2,289.69 per quarter

Scale the same trade to 2030: 48.5% × €91,587.50 = €44,419.94 per quarter.

And to 2034: 100% × €91,587.50 = €91,587.50 per quarter, or €366,350 per year on this one supply line alone.

Scenario B: same steel, supplier in the UK

• Full CBAM value: 1,077.5 × €85 = €91,587.50
• Origin-country deduction: UK ETS at ~€78/t → 1,077.5 × €78 = €84,045
• Net CBAM value: 91,587.50 − 84,045 = €7,542.50
• 2026 CBAM factor: 2.5%
• 2026 cost: €188.56 per quarter

The UK supplier is almost CBAM-free, because UK industry is already paying a similar carbon price. The Turkish supplier is essentially paying full CBAM into EU coffers as the phase-in ramps.

This is by design. The policy is agnostic about where the carbon price is paid — just that it’s paid. If you want to reduce your CBAM exposure, either (a) switch to suppliers in countries with effective carbon prices, or (b) push your existing suppliers’ governments to introduce them.

What this means for procurement strategy

Three concrete implications:

• Build the CBAM factor into multi-year RFPs. A Turkish supplier at €560/t of hot-rolled coil in 2026 and a UK supplier at €595/t look like the Turkish supplier is cheaper — until you add the 2030 CBAM liability. At 2030 rates, the Turkish steel is effectively €560 + €89 = €649 landed, while the UK steel is essentially unchanged at ~€600. The crossover point moves earlier every year.
• Demand supplier Communications. Under Implementing Regulation 2023/1773, non-EU installations can issue a standardised emissions Communication. If your Turkish mill has modernised and runs at 1.6 t CO2/t instead of the 2.155 default, that’s a 26% cut in your CBAM bill. Worth the email.
• Watch the ETS price forecast. EU ETS prices are projected to climb toward €120–€140/t by 2030 per most independent analyst forecasts (Refinitiv, ICIS, BNEF — ranges vary by source). If that’s right, the 2030 number in Scenario A isn’t €44,420; it’s closer to €61,000–€71,000 per quarter. Build that into planning.

Where third-country carbon regimes are heading

Several governments have been visibly working on domestic carbon pricing to avoid the CBAM outflow:

• Türkiye — pilot ETS launched in 2024, expected to cover steel and cement by 2027. If it’s priced meaningfully by then, Turkish CBAM exposure collapses.
• Brazil — cap-and-trade under the 2023 law framework, targeting 2026–2027 operationalisation.
• Indonesia — carbon exchange operational since 2023; prices low.
• India — carbon credit trading scheme framework published 2024, operational uncertain.
• China — national ETS covers power and expanded to steel and aluminium in 2024–2025; prices still modest relative to EU.

The strategic bet: if your supplier’s country introduces credible carbon pricing, your CBAM bill on that supply line drops fast. Track this. It’s one of the few places procurement strategy actually depends on foreign climate policy.

AutoCBAM on this

We surface the CBAM factor + origin-country deduction directly in the declaration workflow. When you add a supplier, we pull the origin-country carbon price from the published third-country registry and calculate the deduction automatically. If the supplier provides a Communication with actual emissions, we use those. Otherwise we apply the IR 2023/1773 default SEE.

The point: CBAM cost is a function of five variables — tonnes, SEE, ETS price, origin-country carbon price, and the Article 36 phase-in factor. Get any of them wrong and your quarterly declaration is wrong. Get all of them right and CBAM is predictable to within a few percent.

Not legal advice. Prices and factors are correct for April 2026; check the quarterly Commission publications for live numbers before you file.