EU ETS mechanics
CBAM and free allocation: what changes for EUA supply
CBAM is the border price. Free allocation is the domestic cushion. Reform moves both.
Updated 2026-08-05 · Model output for professionals · Not investment advice
Two levers, one industrial trade
Free allocation reduces the EUA bill for exposed sectors. CBAM puts a carbon cost on selected imports so EU producers are not alone with that bill.
As free allocation phases down, domestic compliance demand for EUAs rises unless abatement offsets it. CBAM revenue and certificate design sit next to that path, not instead of it.
What to price
Sector coverage, phase-out schedules, and any reform text that accelerates or slows either lever. Industrial Day+1 demand shows whether the real economy is already tightening before the legal schedule does.
FAQ
- Does CBAM replace the EU ETS?
- No. CBAM is a border measure linked to EU ETS carbon costs for covered goods. The ETS remains the domestic cap-and-trade system.