Asia Climate Summit: EUA Volatility Drives Exporters to Hedge CBAM Exposure
Volatility in European Union Allowances or EUAs is pushing exporters to incorporate carbon risk linked to the Carbon Border Adjustment Mechanism or CBAM into multi-quarter supply contracts, with financial institutions stepping in to provide hedging tools, panelists said at the Asia Climate Summit on Thursday.
EUA prices have seen sharp swings this year, opening January near €90 ($102.97) per metric ton, falling to around €65/mt by late February and mid-March, and subsequently rebounding to around €80/mt. OPIS last assessed spot EUA at €78.17/mt on Friday.
CBAM certificate prices are currently calculated as a quarterly weighted average of EUA auction prices, though the European Commission is set to shift to weekly pricing from 2027.
While importers of CBAM-covered sector goods are legally required to surrender CBAM certificates, they are increasingly attempting to pass carbon price risk back to exporters through long-term contracts. Exporters, in turn, are seeking guidance from financial institutions on how to price this exposure, said Alfredo Nicastro, head of carbon markets at StoneX Group.
Unlike EUAs, CBAM certificates are not tradable. Importers must purchase and surrender them against actual imports, with no option to bank or resell unused certificates. The absence of a dedicated futures market has led participants to rely on proxy instruments, including EUA futures and over-the-counter CBAM swaps. StoneX offers CBAM swaps that fix forward prices based on the mechanism’s pricing methodology.
Nicastro added that carbon costs are becoming an increasingly important factor in sourcing decisions, alongside price and quality. EU buyers are pushing back against default emissions benchmarks, which tend to disadvantage suppliers with less robust data. This dynamic is expected to intensify as CBAM expands, with more than 400 additional products under consideration following a recent EU Council decision, pending European Parliament approval around September.
For heavy industries in Asia, the response to managing the risk of exporting into the EU is unfolding along two fronts: compliance infrastructure and decarbonization investment.
Prachi Priya of Hindalco Industries, part of the Aditya Birla Group, said the company has spent the past two to three years digitalizing emissions data and processes to align with CBAM reporting requirements, which differ from conventional greenhouse gas accounting. Hindalco is also pre-testing verification processes with EU Emissions Trading System-accredited verifiers ahead of the European Commission’s own accreditation framework, expected by September.
On the decarbonization front, the company is piloting pumped hydro storage in Odisha to firm renewable power for aluminum smelting, alongside exploring small modular nuclear reactors with the Indian government as a longer-term solution.
At JSW Steel, Narender Sharma said the company is targeting a 42% reduction in emissions by 2030 and net zero by 2050. This is supported by two projects currently under development: a 4 million metric ton green flat steel plant in Maharashtra and a 1 million mt scrap-based electric arc furnace facility. However, Sharma noted that the market has yet to offer a meaningful price premium for lower-carbon steel, with buyers still treating emissions reductions primarily as a compliance requirement rather than a value-added attribute.
“Deploying such technologies require a huge investment. Hence, we are working on pilots, and the moment we see that it is going to help, we will deploy more capex,” said Sharma.
—Reporting by Sang Ah Lee, slee@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com