CBAM, benchmark changes, and free allocation reduction

As a result of the recent EU ETS reforms and the adoption of the EU’s CBAM, European industry will face deep cuts to free allocation. For CBAM sectors, approximately 287 million EUAs will be reduced compared to 2025 levels due to the first of its kind carbon levy. Benchmark changes will have an uneven impact across sectors but will add to this burden. The expected result, which is likely already underway, is the increased participation of industrials on the market as the need to hedge long-term carbon risk becomes clearer.