How CBAM Hedging Works Before Physical Certificates Are Available

CBAM certificate prices are calculated from EU Emissions Trading System auction prices, so every move in the EU carbon market feeds straight into the carbon bill on imported steel, aluminum, iron, fertilizers, cement and electrocity. CBAM hedging works through financially settled swaps on the certificate price, because physical CBAM certificates cannot currently be bought at the point importers take on the exposure. The gap between owing carbon costs and being able to buy certificates leaves importers and their overseas suppliers with an open position to manage.

Leah Wieczorek, StoneX VP of Carbon Markets, covers compliance carbon markets, including the EU Emissions Trading System and the Carbon Border Adjustment Mechanism, and how EU carbon policy shapes international trade. That coverage gives insight into what is driving CBAM costs for importers, from EU carbon auction prices to the way supply contracts split the carbon bill.

Key Themes from the Discussion

• Physical CBAM certificates cannot yet be bought, leaving importers exposed to carbon prices once goods clear customs.
• Financially settled CBAM swaps are one of the few tools available to hedge CBAM certificate prices.
• Importers increasingly ask exporters to cover CBAM costs, with contract terms varying across aluminum, iron and fertilizers.

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CBAM Hedging Fills the Gap Before Physical Certificates Go on Sale

CBAM costs build from the moment imported goods clear EU customs, yet physical CBAM certificates cannot be bought until later, leaving importers with an open carbon price exposure in between. The certificate price for those imports is set by the average EU Emissions Trading System auction price for the period in which the goods cleared customs (quarterly average EU ETS Auction price for 2026), so the bill moves with the EU carbon market long before it is paid. "At the moment, there's not really a lot that companies really can do to protect themselves," Wieczorek says of that waiting period.

Financially Settled CBAM Swaps Let Importers Hedge Certificate Prices

According to Wieczorek, companies "can look into hedge CBAM certificate prices by using a financial settled swap on CBAM" while the physical certificate market remains closed. A financially settled CBAM swap is a hedge on the certificate price itself, settled in cash rather than through the delivery of physical certificates, which is what makes it usable before those certificates exist. The swap gives an importer a way to manage the price of carbon embedded in its imports during the period when no other route to the certificate price is open. Beyond swaps, there is little else companies can do at this stage, so the instrument fills a gap rather than offering a full toolkit.

CBAM pricing is moving from a quarterly average of EU Emissions Trading System auction prices to a weekly average in 2027, which ties CBAM certificate prices more closely to short-term moves in the EU carbon market. Whereas a quarterly average smooths out swings in auction results, a weekly average passes more of that movement through to importers. CBAM certificate prices already track the underlying EU Allowances closely, confirmed by the most recent increase in the certificate price. This means that week-to-week moves in EU carbon auctions feed more directly into the final CBAM bill from 2027 onwards.

CBAM Contract Terms Split Carbon Costs Between Importers and Exporters

Carbon cost allocation has become a concern for exporters as well as importers. While the legal obligation to procure the physical CBAM certificates later on sits with the importer, commercial contracts decide if CBAM costs sit with the EU importer or the overseas exporter. We see a trend for certain commodities of that cost being pushed toward exporters. Wieczorek describes two common arrangements, in which importers either take the open position on certificates themselves or require exporters to absorb the charge.

For importers that keep the carbon cost in-house, the exposure to CBAM certificate prices stays on their own books until the certificates are bought. "We sometimes see that the importers are willing to take the open position for the certificates and carry the costs," she explains, describing one side of the split. Conversely, an importer that passes the charge to its supplier shifts the carbon price exposure onto the exporter's side of the contract.

CBAM Cost Pressure Surfaces First in EU Carbon Auction Prices

EU Emissions Trading System auction prices are the first place CBAM cost pressure shows up, because CBAM certificate prices are calculated directly from them. Several factors continue to underpin the bullish EUA case in the short term. Elevated gas prices can improve the relative economics of coal-fired generation, potentially increasing demand for EUAs, while the prevailing technical structure remains supportive. Against this backdrop, subdued industrial activity is limiting the recovery in emissions-related allowance demand. Political sensitivity to higher carbon prices also represents a potential headwind, as further price appreciation could intensify calls for intervention in the carbon market.

 

--- Written by Frédéric Guétin, StoneX Media Producer

--- Expert: Leah Wieczorek, StoneX VP of Carbon Markets