Energy UK response to CBAM Carbon Price Recognition: Call for Evidence

Executive Summary

Energy UK welcomes the publication of the draft implementing regulation on the conversion of carbon prices paid in third countries into a reduction in CBAM certificate obligations. We support the EU’s climate ambition and the carbon leakage objectives underpinning CBAM. However, the regulation as drafted contains critical gaps that are particularly acute for electricity imports, and which, if not remedied, risk creating a framework that is simultaneously unworkable for operators and miscalibrated as a carbon leakage prevention tool.

This response sets out ten areas of concern specific to electricity imports:

• Timing: the regulation applies from 1 January 2026 but the guidance, calculation methodology and updated default carbon prices remain unpublished, leaving operators to accumulate liability they cannot definitively calculate or anticipate, leading to distortions in electricity trading;
• Inaccurate liability calculation: annual averaging of both carbon prices and the CBAM reference price creates basis risk and unpredictable over- or under-payment, with the full liability unknown until year-end 2026 and due in early 2027;
• Carbon price granularity and harmonisation: the legislation introduces wording that bases both third country carbon price paid and the CBAM price paid on an annual average. An annual weighted average methodology produces inaccurate liability calculations for interconnector flows, creating the risk of either over- or under-payment, as does the use of default values based on five-year averages of national system emissions. Sub-annual (ultimately weekly) attribution of carbon prices and CBAM certificate prices would reduce assessed exposure for exporters and better align liability with electricity market operation;
• Recognition of layered national carbon pricing instruments, including the UK Carbon Price Support alongside the UK ETS;
• Harmonisation of reporting standards with electricity market frameworks including REMIT;
• Grid-level attribution: the regulation’s installation-based methodology does not translate to cross-border electricity flows, with the absence of grid-level default values creating unquantifiable exposure for interconnector operators;
• Importer of record: UK entities trading via EU-UK interconnectors face material structural barriers arising from the requirement for an EU-established declarant, with early exemption under Article 2.6 needed upon ETS linking;
• CBAM reference price: the yearly average certificate price (Article 6(2)) creates basis risk as operators purchase at prevailing prices (see Section 1);
• Foreign exchange rates: yearly average FX rates prevent importers from understanding their CBAM cost exposure at the time of trading, introducing currency risk on cross-border electricity trades; and
• Netting of imports and exports: in the absence of a netting mechanism, CBAM charges risk applying to gross volumes that do not result in net imports, which does not reflect physical or economic reality.

We urge the Commission to address these concerns in the final regulation or through sector-specific guidance published no later than Q3 2026. In the absence of such action, Energy UK supports the position set out in the March 2026 joint call from the European electricity sector that application of CBAM to electricity should be postponed until the necessary implementing framework is in place. Energy UK also calls on the Commission and EU institutions to prioritise swift publication of outstanding guidance, and to ensure that any UK–EU ETS linking agreement provides an early and comprehensive exemption for UK electricity from CBAM obligations.

If you would like to discuss anything noted in this response in more detail, please do get in touch.

Sincerely,

Tobias Burke
Policy Manager

Tobias.Burke@Energy-UK.org.uk