INTERVIEW: Power market faces uncertainty as EU prepares final CBAM rules

The European power market is facing several uncertainties as the bloc prepares to fully implement a carbon emissions tax on goods entering its borders starting Jan. 1, 2026.

"There are a lot of missing pieces of the puzzle," Federico Barbieri, policy coordinator for electricity and carbon markets at Energy Traders Europe, told Platts, part of S&P Global Energy, in an interview.

The EU's Carbon Border Adjustment Mechanism is currently facing significant challenges, with key legislative items missing, which pose hurdles to its implementation.

Draft documents circulating over the past few weeks have sparked backlash, with many expressing concerns about a lack of clarity and overestimation of the carbon content of imports. The European Commission is expected to vote on remaining legislation in the afternoon of Dec. 9, with a final CBAM package expected by Dec. 16, according to media reports.

"The preliminary feedback [based on the drafts] is that the documents do not provide sufficient guidelines for electricity importers," said Barbieri, adding that there was a real regulatory risk due to the level of uncertainty.

The commission has recently released provisional benchmarks that will enable cost estimations for importers, with draft documents also circulating regarding default values for individual countries. However, both benchmark and default values are pending full publication and potential revisions.

"What CBAM is doing is practically undermining the integration of the European electricity market. [This] is something that is really high on the political agenda, the integration and the optimization of the infrastructure," said Barbieri. "However, with CBAM, we risk taking a step back."

PPAs, transit and commercial flows

Some of the major issues currently facing the power market due to CBAM are the treatment of power purchase agreements, the issue of transit and that of electricity flows, said Barbieri.

A set of key legal components is necessary for operationalizing CBAM: nine implementing acts and two delegated acts.

Two implementing acts related to the conditions for authorizing CBAM declarants and the conditions for CBAM applications for goods brought to EEZ have been drafted, in the first and fourth quarters of 2025, respectively. Several other items are still missing.

"One of the key rigidities of CBAM is that many provisions are established in the primary legislation," said Barbieri. "This rigidity restricts the freedom of the commission to actually make improvements before the start of the definitive period."

Power purchase agreements remain one unaddressed aspect of CBAM. These are long-term contracts between electricity generators and offtakers, which allow for the purchase of electricity at a pre-negotiated price. The question of what electricity power agreements will be compliant under CBAM remains unanswered.

Transit and flows are other significant questions for power importers, with no clarity regarding flows between EU and non-EU countries that ultimately reach EU grids.

"For example, you might have EU-non-EU-EU flows or non-EU-EU-non-EU flows. So, of course, in both cases, CBAM should not apply," said Barbieri.

Another significant debate in the sector, said Barbieri, is whether CBAM should apply to physical or commercial flows.

Commercial flows are the final confirmed quantities that transmission system operators confirm to market participants after nomination procedures. Physical flows are then managed by the TSOs to balance the grid.

"The issue is that from that point, market participants, importers have no visibility of how the physical flow will evolve," said Barbieri. "So, it is really crucial for the practical implementation of CBAM is that it is applied to commercial flows."

Default values

To operationalize CBAM, default values are needed for calculating CBAM costs in the absence of actual emissions data. These values are currently being drafted by the EC.

"For electricity, [default values] are calculated based on the assumption that you are only importing fossil-fuel-generated electricity," said Barbieri.

The calculation of the CO2 factor for electricity imports is based on the five-year average of the emitting generation, which can be either gas or coal, procured from data by the International Energy Agency over the 2019-2024 period for 2026 compliance.

"You are overestimating the imports, the actual imports of the actual carbon content of the import," said Barbieri, giving the example of the UK, where the carbon content of electricity is around 150 grams of CO2 per kilowatt hour. But using the CO2 emission factor, the total will rise to around 450g CO2/kWh, three times higher.

"On one side, the commission wants to promote the utilization of actual values. It's a bit like having a big stick and an uncertain carrot," said Barbieri.