ETS Review: The Commission Stretches the CBAM Phase-in to 2038

The Commission presents the ETS review

On 17 July 2026, the European Commission presented its proposal to revise the ETS Directive (COM(2026) 616). The package is designed to align the emissions trading system with the 2040 climate target while easing the burden on industry. For importers of CBAM goods, it contains one change with a direct cost impact. The CBAM factor, which drives the phase-in of the certificate obligation, gets a new schedule. Free allocation for CBAM sectors will be phased out more slowly, ending in 2038 instead of 2034.

Why the CBAM factor sets the cost curve

EU producers of CBAM goods continue to receive free ETS allowances. To avoid burdening imports more heavily than domestic production, the number of CBAM certificates to be surrendered is adjusted for this free allocation. The legal basis is Article 31 of the CBAM Regulation, and the adjustment is calculated on a benchmark basis under Implementing Regulation (EU) 2025/2620. The pace is set by the CBAM factor in Article 10a(1a) of the ETS Directive. It determines what share of their benchmark allocation EU installations still receive for free. The lower the factor, the larger the share of embedded emissions for which importers actually pay the carbon price through CBAM certificates. Under current law, the factor reaches zero in 2034, from which point the full carbon price would be due.

From 2028, the old and new paths diverge

For 2026 and 2027, nothing changes, with factors of 97.5% and 95%. From 2028, the proposal sets the factors above current law, at 91.5% instead of 90% in 2028, 81% instead of 77.5% in 2029 and 59% instead of 51.5% in 2030. The gap remains substantial thereafter, for example 37.5% instead of 26.5% in 2032. From 2034 to 2037 the factor stays flat at 15%, and zero applies only from 2038. The Commission itself explains the logic. 15% of the free allocation already phased out will be reintroduced from 2028 to slow the CBAM phase-in and mitigate the remaining carbon leakage risk.

For importers, the payable share falls in every year from 2028. In 2030, the carbon price would arithmetically be due on 41% instead of 48.5% of the benchmark quantity, and from 2034 to 2037 on 85% instead of 100%. The amended factors are set to apply from 30 September 2027. Since the values for 2026 and 2027 remain unchanged, nothing changes for the first CBAM declaration, due by that same date for the year 2026. Anyone who has modelled their CBAM costs on the old path should nevertheless recalculate the years from 2028 onwards, as a scenario alongside current law.

Newly added CBAM goods get a gentler start

For the first time, the proposal sets out what happens when Annex I of the CBAM Regulation is extended to further goods. Without a special rule, such goods would immediately fall under the factor of the respective year. In future, their factor will remain at 100% until the next five-year allocation period following their inclusion begins. In the first year of that period, 97.9% applies, in the second year 95.8%, after which the goods run through the regular sequence from the start, beginning with the value for 2028. This matters because of the extension of CBAM to downstream steel and aluminium products proposed in December 2025. If those goods are added and their production benefits from free allocation, importers would have several years of lead time before certificate costs become significant.

The rest of the package works through the certificate price

Beyond the CBAM factor, the proposal also touches import costs. Free allocation continues beyond 2030 and will be tied to decarbonisation investment conditions from 2031, explicitly including CBAM sectors. A separate benchmarks proposal is intended to increase free allocation for the years 2026 to 2030 by around EUR 6 billion. Added to this are the reform of the Market Stability Reserve and the integration of permanent carbon removals into the emissions trading system. For importers, all of this matters through a single channel. The price of CBAM certificates is derived from EU ETS auction prices, so any change to supply and demand in the ETS feeds through to the CBAM bill.

Outlook

The proposal now enters the ordinary legislative procedure as file 2026/0212 (COD). Parliament and Council can still change the schedule, and the new path only becomes reliable once adopted. Until then, CBAM cost projections for the years from 2028 should be run on two tracks, once under current law and once under the Commission proposal.

Support

If you would like to understand how the new CBAM factor schedule could affect your CBAM cost planning, for example certificate budgets from 2028 or price clauses in longer-term supply contracts, please get in touch at helge@kolum.earth.