Carbon costs have moved from a side note to a fixed line in many European budgets. Finance leads now need a working price for EU ETS allowances, and a plan for free allowances that are shrinking. This article sets out which numbers belong in a budget, which need extra care, and where the rules are still moving.
How much should a budget assume for EU ETS allowances?
Start from recent market prices rather than older planning assumptions. The European Commission's average for April to September 2026 was EUR 78.93. The European Energy Exchange (EEX) auction on 1 October 2026 cleared at EUR 84.70. Both readings are recent, so they make sensible bookends for a first budget case. Note that the two readings come from different periods and venues, so compare them with care. As practical advice, not a fact, model at least two scenarios: one at the average and one at the latest auction price.
Treat the higher reading, EUR 84.70, as a stress test rather than a ceiling. Planners usually find a range safer than a single number, because prices can move between budget reviews. Record the source and date of each price input, so the board can trace later changes.
Does free allocation still cover your emissions?
The rules on free allocation are tightening for sectors under the carbon border adjustment mechanism (CBAM). The European Commission says free allocation for CBAM sectors "is being gradually phased out between 2026 and 2038." In plain terms, the free share falls over time, so more of your emissions must be covered by purchased allowances. As practical advice, map that schedule against your own installation before setting next year's budget. Keep the schedule in your model so that each year's free share is visible.
Your exposure depends on your installation's allocation and your sector, so no single rule fits every plant. Ask your operations team for the allocation figures in writing. Then compare them with the phase-out timetable year by year.
What does CBAM add to the carbon bill?
CBAM certificate prices are based on EU ETS auction averages, according to the European Commission. EEX figures cited in market summaries put the 2026 quarterly reference values at EUR 75.36 for Q1, EUR 75.28 for Q2 and EUR 82.32 for Q3. Certificate sales open on 1 February 2027, and the first annual declaration for 2026 imports is due 30 September 2027, according to summaries of Regulation (EU) 2025/2083.
Authorised declarant status is needed above 50 tonnes of covered goods a year, according to BDO. Electricity and hydrogen are covered regardless of quantity, per the same BDO guidance.
The European Commission lists cement, iron and steel, aluminium, fertilisers, electricity and hydrogen as covered sectors. For a budget, the practical question is whether your products fall inside those groups and whether your import volumes cross the 50 tonne threshold.
When does ETS2 start?
According to ICAP, ETS2 now starts on 1 January 2028, a year later than planned. The Council adopted an amended Climate Law on 5 March 2026. A sensible step is to update multi-year plans to the new date so cost ramps start in the right year. Check whether your contracts or forecasts still assume the older start year.
How should the budget be structured?
As a suggestion, build the carbon line in three parts: allowances you must buy, free allowances still expected, and CBAM costs once the certificate market opens. Keep each part on its own assumption sheet. That structure shows which driver moved when prices or rules change. Revisit the split at each budget review.
