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How do you hedge CBAM certificate costs with EUA futures?

CBAM certificates cannot be bought forward, but their price follows EU ETS auctions, so the exposure can be hedged with allowance futures, imperfectly.

Julian R. Sterling · from The CBAM Compliance Handbook

You buy EU ETS allowance (EUA) futures for part of the certificates you expect to need, and sell them as you buy the certificates. From 2027 the CBAM certificate price is a weekly average of EU ETS auction clearing prices, so a futures gain offsets a dearer certificate and a futures loss offsets a cheaper one. An illustrative importer expecting 12,000 certificates that hedges 70 per cent at 85.00 pays between 77.47 and 95.00 a certificate whether the price averages 60 or 120, instead of anywhere from 60.00 to 120.00.

Worked in full in The CBAM Compliance Handbook by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →

For 2026 imports the question barely arises: each quarter's price is published after the quarter ends, as worked in how the CBAM certificate price is calculated for 2026. From 2027 the price is set every week, the free allocation adjustment shrinks every year, and the certificate bill becomes a commodity exposure that a treasurer can budget, or hedge.

The assumptions

Illustrative prices in euros. Not a forecast of the EU ETS price and not advice to trade.

Input	Value
Expected certificates for the year's imports	12,000
Hedge ratio	70%
Futures bought: December contract, lots of 1,000 tonnes	8,400 t
Futures price when the hedge is placed; spot that day	85.00; 82.00
Certificates bought in four equal tranches, months left to expiry	9, 6, 3, 0
Carry in the futures curve	3% a year
Initial margin; cost of funding it	15%; 5% a year

The budget the hedge protects is 12,000 × 85.00 = 1,020,000. Hedging 8,400 tonnes means buying 8.4 lots, in practice 8 or 9.

The calculation, step by step

When each tranche of certificates is bought at the week's price P, the matching futures are sold. Before expiry a future still carries some of the curve's carry, so it closes slightly above the spot: on average across the four tranches, at P × 1.01125, 4.5 months of carry at 3 per cent.

The result across prices

Unhedged, the bill moves 720,000 between the two extremes; hedged, 210,330.

Average price paid	Unhedged cost	Futures result	Hedged net cost	Per certificate	Hedged vs budget
60	720,000	−204,330	929,685	77.47	−90,315
70	840,000	−119,385	964,740	80.39	−55,260
85	1,020,000	8,032	1,017,322	84.78	−2,678
100	1,200,000	135,450	1,069,905	89.16	49,905
120	1,440,000	305,340	1,140,015	95.00	120,015

The hedge does not lock 85.00 for the whole bill, because 30 per cent is open. It removes 70 per cent of the swing: at 120 the overrun against budget is 120,015 instead of 420,000, and at 60 the importer gives up most of a 300,000 windfall. That is the trade a hedge always makes, and the reason to decide the ratio before the price moves, not after.

What if the volume is wrong? Choosing the hedge ratio

The certificate count is not known in advance. It depends on the tonnes actually imported, the emissions the suppliers verify, and whether default values have to be used. A hedge sized on 12,000 certificates becomes a speculative position the moment imports fall.

Net cost per certificate actually needed, margin funding included.

Hedge ratio	Price 60, volume as planned	Price 120, volume as planned	Price 60, volume 30% lower	Range
0%	60.00	120.00	60.00	60.00
50%	72.48	102.14	77.83	29.66
70%	77.47	95.00	84.96	17.53
100%	84.96	84.29	95.66	11.37

A full hedge looks best on price alone, but its worst case is the combination treasurers fear: imports fall 30 per cent to 8,400 certificates while the ETS price falls to 60. The futures then lose 291,900 on 12,000 tonnes, of which 87,570 sits on 3,600 tonnes there is no obligation to cover, and each certificate effectively costs 95.66. A ratio close to the share of the obligation that is certain, here the 70 per cent the importer would buy in its worst plausible year, keeps that case at 84.96.

The common mistakes

• Treating EUAs as a substitute for certificates. They are not interchangeable: allowances cannot be surrendered for CBAM, and certificates are bought only from the central platform. The futures are a financial hedge: sold before expiry, or the allowances delivered at expiry sold on, never surrendered against the obligation.
• Forgetting the cash. A fall to 60 calls 8,400 × 25.00 = 210,000 of variation margin, months before any certificate is cheaper to buy. The loss is recovered later through cheaper certificates, but the cash leaves first, so the margin line belongs in the same cash plan as the quarterly holding requirement worked in what a CBAM certificate buffer costs to hold.
• Hedging at spot. The futures were bought at 85.00 against 82.00 spot, 3.7 per cent of contango, 25,200 on the hedged volume. Budgeting at 82.00 and hedging at 85.00 builds a variance into the plan on day one.

Takeaway

Hedge the certain part of the obligation, not the forecast. Size the hedge on the certificates you would need in a bad import year, buy the December futures contract of the year in which the certificates will be bought, close them tranche by tranche as certificates are bought, and fund the margin. In the illustrative case a 70 per cent hedge turns a 60 to 120 range into 77.47 to 95.00 a certificate for about 5,355 a year. The book's cash profile, with the 2027 calendar and the buffer, is in the free workbook for this case.

Questions readers ask

Can you buy CBAM certificates in advance to lock in the price?

Not as a forward. There is no CBAM market: certificates are bought from the central platform at the published price of the week, which from 2027 is the average of EU ETS auction clearing prices. An importer wanting price certainty buys EUA futures instead. In the illustrative case 8,400 tonnes of December futures at 85.00 cover 70 per cent of an expected 12,000 certificates.

Why not hedge 100 per cent of the CBAM obligation?

Because the volume is uncertain. Imports, supplier emissions data and default values all move the number of certificates. In the illustrative case a full hedge narrows the price outcome to 84.29 to 84.96 a certificate, but if imports fall 30 per cent while the price falls to 60, the futures lose 291,900 and the certificates actually needed cost 95.66 each.

What does an EUA futures hedge cost?

Mainly the contango and the margin. The illustrative December contract trades at 85.00 against 82.00 spot, 3.7 per cent above it. Initial margin of 15 per cent on 8,400 tonnes is 107,100, costing about 5,355 a year to fund at 5 per cent, and a fall to 60 would call 210,000 of variation margin before any certificate is bought.

Also on this site

• How is the CBAM certificate price calculated for 2026 imports?A quarterly average of EU ETS auction prices, applied to each quarter's imports. 360 certificates at 75.36, 75.28, 82.32 and 80.00 cost 28,060.56 euros.
• What a CBAM certificate buffer costs to holdCarry and protection are both linear in the buffer, so the break-even probability is the same at 5 per cent and at 30. And 2027 costs exactly twice 2026.
• How much will CBAM cost per tonne of steel from 2026 to 2034?With a 1.37 benchmark, 2.0 tCO2 a tonne and 80 euro certificates, CBAM costs 53.14 euros a tonne of steel in 2026, 103.56 in 2030 and 160.00 in 2034.
• How is carbon price paid abroad deducted from CBAM certificates?Only the price effectively paid, after free allocation and rebates, on the emissions it covered: 5.40 euros a tonne of steel, 0.072 certificates, not 21.375.
• Should CBAM costs go into inventory or straight to expense?If CBAM is treated as an IAS 2 cost of purchase, 67,710 of 344,192.5 euros of 2026 CBAM stays in closing stock and gross profit is 67,710 higher than if expensed.
• How much does CBAM add to the unit cost of an EU-made product?CBAM cost per tonne imported times gross steel per unit: 42.85 euros on an illustrative part using 0.60 t of steel at 80% yield in 2026, and 123.00 by 2034.

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