CBAM Costs Loom as EU Carbon Price Cools From EUR86 High
A quiet week for EU carbon prices still moves the number that will decide how much Indian steel and aluminium exporters pay to keep selling into Europe, just not the number most people are watching.
European carbon allowances (EUAs) fell 1.8% over the week to August 14 amid thin summer trading, even as European gas futures rose 11% on low storage levels and shipping tensions around the Strait of Hormuz. The move pulled EUAs back further from the six-month high of EUR86.6 per tonne the benchmark December 2026 contract touched on July 22.
A Reform Proposal Drove the Spike, Then the Market Corrected
The European Commission unveiled a package of EU Emissions Trading System reform proposals on July 17, including the release of additional allowances, a defined path for free industrial allocations tied to investment pledges, and adjustments to the Market Stability Reserve. Speculative positioning ahead of that announcement pushed the EUA price to its six-month high five days later. Prices corrected to EUR83.8 per tonne within a day and had eased to just above EUR80 per tonne entering August, before this week's further 1.8% decline.
Gas and Carbon Prices Decoupled This Week
EUA and gas prices typically move together, since costlier gas pushes European power generators toward higher-emitting fuel sources and lifts compliance demand for allowances. This week broke that pattern: gas rose sharply on supply risk while carbon fell on thin, low-conviction summer volume, a divergence traders read as a liquidity effect rather than a shift in underlying fundamentals.
The Number That Actually Reaches Indian Exporters Sits One Step Removed
CBAM-liable EU importers do not pay the daily spot price. They pay a certificate cost benchmarked to the European Commission's quarterly reference price, a volume-weighted average of EUA auctions across that quarter. The Commission set the Q1 2026 reference price at EUR75.36 per tonne and the Q2 2026 price at EUR75.28 per tonne. This week's 1.8% dip will not show up in Indian exporters' certificate costs until the Q3 2026 reference price is calculated from July-to-September auction data, expected around October.
So What
That lag matters because the underlying trend, not this week's wobble, is what is squeezing Indian exporters. The Global Trade Research Initiative estimates Indian steel and aluminium exporters may need to cut export prices by 15% to 22% to remain competitive as CBAM's payment phase embeds carbon costs into EU contracts, with GTRI warning that "CBAM marks a structural shift in global trade" where carbon intensity, not just price, decides market access. At a EUR90 per tonne EUA price, GTRI estimates importers of high-emission steel could face extra costs of EUR40 to EUR60 per tonne, a range the market has traded within for most of 2026. GTRI also projects that India, alongside Turkey, China, Ukraine and Russia, will account for more than half of global CBAM-related costs by 2030.
What to Watch
Watch the European Commission's Q3 2026 CBAM reference price when it publishes around October, since that figure, not this week's spot move, is what lands on Indian exporters' invoices, and watch whether the July 17 ETS reform package survives negotiation intact or is watered down before adoption.
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