European carbon prices traded under the ETS scheme are expected to quickly rise to up to €185/tonne ($218/t) in 2035, according to BloombergNEF estimates.
As allowances are reduced, the EU ETS price is set to increase from €75/t in the first quarter to an average of €86/t for full-year 2026 and €142/t in 2031, BloombergNEF analysts said in a webinar on Thursday attended by Kallanish.
Brussels must tighten the number of emissions allowances available in the bloc’s carbon market to see meaningful emission reductions in hard-to-abate industries, suggested Allen Abraham, head of sustainable materials at BNEF.
“The EU is trying to reduce the amount of free allocated emission allowances to various sectors, especially those covered by CBAM today, like steel, cement and aluminium,” he explained. “And that means the carbon exposure for these CBAM-covered goods is going to increase substantially, and the carbon prices in the EU ETS are also expected to rise substantially this year.”
Iron and steel accounted for 70% of the imported goods covered by the Carbon Border Adjustment Mechanism (CBAM) in 2024, by volume and value, BNEF estimates. The largest exporters of CBAM-covered iron and steel were mainland China, Turkey, India and the UK.
While clarity is still needed on calculating costs, Abraham warned that the default values proposed by the European Commission could distort competitiveness between markets. That is because these default emissions obligations are set at conservative levels, and in certain cases, much higher than actual emissions, noted Brynne Merkley, European energy transitions associate at BNEF.
The move is intended to force companies to verify the embedded emissions of the goods with EU-accredited institutions. The analysts said the default values are “highly punitive for most products”.
For hot-rolled steel imports, for example, BNEF projects a default CBAM cost increase of nearly 30% for mainland Chinese material and 33% for Russian material. India could see an increased cost of 45%, while Canada and Brazil benefit from low costs and increases of around 4% and 6%, respectively. Imports from South Korea, Turkey and Ukraine could see rises of up to 20%.
“The default obligation can quickly rise close to as high as €500/t by 2030, so that is as high as the cost of the product itself, in some cases now,” commented Abraham. “So, verifying your actual emissions, declaring them and then getting them approved by bodies that are already acknowledged by the EU is extremely important to ensure that companies can remain competitive in the European market.”
Author: Gabriela Farhangi
