December 5, 2025 | Volume II, Issue 11 | The FACS Team
Welcome to the December edition of the Carbon Market News Roundup, our monthly briefing on the evolving landscape of global carbon markets and climate-related regulation. Our previous issues, along with the rest of our commentaries, may be read here.
In this month’s issue, we track a series of pivotal regulatory shifts across the EU’s climate policy architecture that are reshaping compliance obligations for industry, shipping, and global supply chains. The EU ETS enters a defining phase ahead of 2026, with rising allowance-price expectations, benchmark revisions, expanded sectoral coverage, and new proposals to stabilize the forthcoming ETS2. In parallel, maritime decarbonization faces both momentum and uncertainty: EU MRV data reveal record-high shipping emissions even as Brussels moves to scale sustainable fuel production and refine methane-slip reporting, while the IMO’s postponement of its Net-Zero Framework deepens reliance on regional systems such as the EU ETS and FuelEU Maritime.
This edition also examines accelerating policy developments under the EU’s Carbon Border Adjustment Mechanism, including leaked benchmark values, implementation reforms, verification rules, and the growing urgency expressed by global business groups for clarity ahead of the definitive phase in January 2026. Closing out the issue, we assess major trends in the voluntary carbon market and present this month’s Country-Specific CBAM Exposure analysis, focusing on Malaysia’s concentrated vulnerabilities as CBAM reshapes global industrial competitiveness.
EU ETS – Regulations Updates
Carbon price in the EU ETS to hit €126/t by 2030
Andrii Glushchenko, GMK Center
2025 Carbon Market Report: EU ETS lowers power sector emissions and expands to maritime transport
European Commission
European Commission
Council of the EU
Forecasts for the EU carbon market suggest continued upward momentum in allowance prices as key regulatory changes take effect. A consensus survey cited by GMK Center places EUAs at an average of €126 per ton by 2030, reflecting expectations of tightening supply as free allocations decline and CBAM enters its definitive phase. Analysts widely anticipate higher prices beginning in 2026, when benchmark revisions and sector-specific allocation reductions will intensify demand for allowances. At the same time, structural market mechanisms such as the Market Stability Reserve may play a greater role in absorbing surpluses. The latest Carbon Market Report from the European Commission shows how the EU ETS continues to deliver emissions reductions in the power sector, which fell by nearly 11% in 2024, while maintaining high compliance levels across both industry and aviation. The inclusion of maritime transport in 2024 proceeded smoothly, with companies surrendering more than 99% of required allowances and revenues reaching €38.8 billion.
Source: Trading Economics
Alongside these developments, policymakers are fine-tuning ETS governance to ensure stability during expansion. The European Commission has proposed targeted adjustments to the Market Stability Reserve ahead of the launch of ETS2, adding a top-up mechanism for price spikes, extending the validity of reserve allowances beyond 2030, and creating buffers for early intervention. These changes are intended to support a smoother start for the new system, which will cover emissions from road transport and buildings beginning later in the decade. Broader regulatory coordination is also advancing, with the Council authorizing negotiations to link the EU and UK ETS. A linked system would align sectoral coverage, reduce carbon-leakage risks, and potentially enable mutual CBAM exemptions.
Maritime & Shipping Updates
EU shipping emissions last year highest since official recording began
Transport & Environment
EU moves to scale up production of sustainable maritime fuels as global race heats up
Naida Hakirevic Prevljak, Offshore Energy
EU guideline for reporting and verifying actual methane slip for FuelEU and EU MRV/ETS
DNV
What the delay of the IMO’s Net-Zero Framework means for maritime decarbonization
Levi McAllister, Reuters
Newly released EU MRV data show that shipping emissions in the EU reached their highest level since reporting began in 2018, despite a decline in seaborne trade. A 13% increase in emissions was largely driven by container vessels sailing longer routes and operating at higher speeds, amplifying fuel use and carbon output. The findings show the sensitivity of shipping emissions to operational factors and reinforce calls to strengthen the EU ETS, which has already achieved 99% compliance in its first year. Industry analysts argue that continued expansion of the system to smaller vessels will be key to ensuring that polluters face consistent carbon costs. Alongside pricing measures, the European Commission is advancing the Sustainable Transport Investment Plan to scale domestic production of renewable and low-carbon fuels. The initiative aims to mobilize at least €2.9 billion by 2027 and unlock up to €100 billion in sustainable fuel investments needed to meet FuelEU Maritime and aviation targets by 2035, while reducing dependence on imported fossil fuels and strengthening Europe’s industrial competitiveness.
Momentum on maritime decarbonization also includes new technical and regulatory guidance. A recently published EU guideline for verifying methane slip under FuelEU Maritime and the EU MRV/ETS introduces procedures that allow operators to apply actual methane slip values. Meanwhile, global regulatory uncertainty deepened following the IMO’s decision to delay its Net-Zero Framework by one year, leaving shipowners without a clear timeline for global carbon pricing or mandatory GHG-intensity standards. The postponement risks slowing investment in alternative fuels and infrastructure, increases exposure to ESG and disclosure risks, and heightens the likelihood of fragmented regional regimes as the EU, UK and others press ahead with their own pricing systems. Maritime stakeholders are encouraged to use this interim period to strengthen emissions monitoring, scenario planning, contractual provisions, and fuel strategy development to stay aligned with long-term decarbonization expectations despite the absence of immediate global regulation.
EU CBAM Updates
Leaked CBAM provisional benchmarks largely in line with market expectations for aluminium and steel
Laura Roberts, Fastmarkets
EU CBAM: What’s new and what’s next?
CMC
EU to publish CBAM benchmarks after ETS revision in 2026
Eurometal
International Chamber of Commerse
New details emerging from Brussels are beginning to clarify what CBAM’s definitive phase will look like, even as significant uncertainties remain for importers. A leaked European Commission draft outlining provisional benchmarks for aluminium and steel largely aligns with market expectations and provides insight into how embedded emissions will be calculated from 2026 onward. The precursor-based approach may reward companies able to provide verified emissions data, while still pending default values are expected to carry higher compliance costs. The annex also addresses long-standing concerns around scrap leakage by creating a distinct framework for secondary aluminium, though industry participants note that loopholes remain without inclusion of post-consumer scrap. These developments come as the Commission advances broader CBAM rulemaking, including the Omnibus Regulation’s new de minimis threshold, delayed certificate-purchase timeline, offshore production exemptions, and simplified emissions calculations. Businesses now face a tightening implementation schedule in which authorised declarants, updated methodologies, and technical requirements must all be in place by January 2026, with further legislative proposals expected to expand CBAM’s scope and refine rules on deductions, accreditation, and downstream products.
Additional clarity is beginning to emerge around embedded-emission benchmarks and verification requirements, with the Commission confirming that final CBAM benchmarks will only be published after the 2026 ETS benchmark revision. Default values for emissions and carbon prices will be released in late 2025, alongside updated methodologies and documentation requirements. Verification procedures for non-EU producers are expected to closely mirror EU ETS standards, including annual monitoring, risk-based assessments, and mandatory correction of non-material issues. Meanwhile, scope expansion has been pushed to 2027, delaying decisions on additional industrial goods, the steel-scrap loophole, and indirect-emissions pricing. As these rules progress, business groups are calling for urgent clarity: the International Chamber of Commerce warns that the absence of final guidance risks obstructing compliance planning for 2026 and creating unnecessary trade friction. In a letter to EU leaders, the ICC stressed the need for workable methodologies, consistent default values, predictable appeals mechanisms, and proportionate treatment for SMEs and developing economies.
Voluntary Market (VCM) & Emerging Compliance Markets
After years in the doldrums, new reforms may unlock growth for carbon finance
Ben Payton, Reuters
What can India’s bilateral carbon credit deals learn from the centralised global carbon market?
Vaibhav Chaturvedi, Carbon Copy
Latest U.N. analysis shows climate pledges cutting emissions by 12%
Reuters
In charts: ten years since the Paris climate accord
Aditi Bhandari and Jana Tauschinski, Financial Times
Recent developments in the voluntary carbon market reflect both the promise of new integrity reforms and the challenges these reforms create for project viability. Following years of reputational scandals and methodological weaknesses, initiatives such as the Integrity Council and updated crediting methodologies aim to restore market confidence, yet they are also reducing credit issuance significantly and exposing the financial fragility of many legacy project types. Forest-based “avoidance” schemes, in particular, are issuing up to 90% fewer credits per hectare under new rules, and developers warn that excessive conservativeness could render numerous projects unviable. Despite these reforms, carbon credits remain mispriced, averaging just $5.30 per tonne in early 2025. As voluntary demand struggles to rebound, regulated markets continue expanding, with 40 countries now operating carbon-pricing schemes and airlines preparing for large-scale credit purchases under CORSIA by 2027. In parallel, India’s first bilateral carbon-credit agreement under Article 6.2, signed with Japan, indicates growing momentum in international market cooperation. The deal comes ahead of COP30 and shows the need to embed strong integrity safeguards in new bilateral projects, drawing lessons from Article 6.4’s centralised rules on declining baselines, additionality requirements, and conservative adjustment mechanisms.
Yet these emerging cooperation frameworks also raise important questions about how carbon-credit transfers interact with national climate targets. India’s NDC could be jeopardized if credits generated domestically are sold internationally without proper accounting safeguards, prompting new “authorisation” rules that govern whether reductions contribute to India’s own mitigation goals or are transferred abroad. These mechanisms are intended to reduce uncertainty for investors and ensure consistency between Article 6.2 bilateral deals and the integrity provisions developed under Article 6.4. Meanwhile, the broader global emissions context remains sobering. A new UNFCCC analysis indicates that current climate pledges would reduce emissions only 12% by 2035 relative to 2019 levels which is far short of the 60% cut required to limit warming to 1.5°C. Ten years after the Paris Agreement, global temperatures continue to rise, fossil-fuel emissions have not yet begun to fall, and renewable energy growth, while significant, has not fully displaced fossil generation.
CBAM Exposure – Malaysia
Malaysia faces a growing but concentrated exposure to the EU’s Carbon Border Adjustment Mechanism (CBAM). The EU accounts for about 7.9% of Malaysia’s total trade, making it the country’s fourth-largest export destination, with exports to Europe expanding by roughly 22% in recent years. While CBAM-covered goods represent only around 6.7% of Malaysia’s exports to the EU, the risk is disproportionately clustered in a few energy-intensive sectors, especially iron and steel, which make up nearly three-quarters of Malaysia’s CBAM-related exports. Analysts warn that if Malaysian firms fail to meet CBAM-grade reporting standards, as much as 57% of Malaysia’s exports to the EU could be affected, showing the urgency of strengthening emissions monitoring systems and compliance readiness ahead of CBAM’s full implementation in 2026. Malaysia does not yet operate a national carbon-pricing mechanism, but the government has announced plans to introduce a carbon tax by 2026 for the iron, steel, and energy sectors, with revenues earmarked for decarbonization technologies. In parallel, authorities are considering a domestic ETS to cover sectors outside the tax, while the Bursa Carbon Exchange (BCX) is emerging as a tool to meet future compliance obligations. Exporters have been required to report emissions since October 2023, with larger firms developing MRV frameworks, though implementation remains uneven among SMEs.
Sectoral data show how Malaysia’s CBAM exposure is both significant and unevenly distributed. In 2024, the EU imported US$248 million in iron and steel and nearly US$592 million in aluminum from Malaysia, alongside smaller volumes of fertilizers and cement. Iron and steel remain the most vulnerable due to their emissions intensity and reliance on fossil-based energy, while aluminum exporters face rising electricity-related carbon costs. Fertilizer and cement exports account for only a marginal share of Malaysia’s EU-bound trade, but even small carbon-cost differentials could erode margins in competitive markets. As CBAM phases in, Malaysian exporters may face tightening cost pressures, potentially affecting output, profitability, and trade flows, particularly in industrial sectors central to Malaysia’s manufacturing economy. Strengthening MRV systems, accelerating decarbonization investments, and operationalizing domestic carbon-pricing instruments will be key to reducing exposure and maintaining competitiveness in the EU market.
Recommended Reads
US Economy Wins From Green Exit, Unless the World Follows Suit
Emma Court, Bloomberg
The world is likely to exceed a key global warming target soon. Now what?
United Nations Environment Programme
West Balkan power producers should adopt carbon pricing as EU tax looms, campaigners say
Reuters
Global Climate Policy Is Broken | Foreign Affairs
Jessica F. Green, Foreign Affairs
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