Regulatory Window Risk in Carbon Border Adjustment: Historical Evidence for the CBAM Quarterly-to-Weekly Transition

Abstract

The European Union Carbon Border Adjustment Mechanism converts EU allowance auction prices into regulated import liabilities. This paper measures regulatory window risk: the pricing interval determines how far an auction-day carbon price can lie from the regulated price assigned to that date. Using 2,676 official European Energy Exchange EUA primary auctions from 2013 through 2025, I apply weekly, 14-day, monthly, and quarterly volume-weighted pricing rules to identical realized price paths. Mean quarter-level absolute basis rises monotonically from 1.927 percent under weekly pricing to 6.145 percent under quarterly pricing, and weekly pricing lowers it in all 52 quarters. The 4.218-percentage-point paired reduction is highly significant under t, signed-rank, and 200,000-draw sign-flip inference. For squared loss, lower error under a nested weekly partition follows from an exact weighted-variance decomposition; the empirical contribution is its magnitude and state dependence. Between-week variation accounts for 86.0 percent of quarterly weighted squared error on average, and the quarterly-to-weekly MAE reduction correlates 0.950 with withinquarter auction-price variation. Actual calendar weeks differ from quarter-contained weeks by at most 0.188 percentage points of quarter MAE. Exact reproduction of the first two official 2026 prices validates the regulatory construction. The 2027 shift therefore materially compresses liability basis, especially when a quarter spans different carbon-price states.

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