EU Strengthens ETS2 Price Controls Ahead Of 2028 Launch
The European Union has agreed to strengthen safeguards designed to control prices in its upcoming carbon market for heating and transport fuels. The move follows concerns from several member states that the emissions-cutting mechanism could lead to higher fuel costs for consumers and fuel opposition to climate policies.
Negotiators representing EU countries and the European Parliament reached the agreement on Wednesday evening. The revised measures aim to provide greater market stability while maintaining the bloc’s long-term emissions reduction objectives.
Stronger Market Stability Measures
Under the agreement, additional carbon permits will be released into the market if prices rise above €45 per metric ton of carbon dioxide. In such cases, 40 million permits will be made available from a market stability reserve, doubling the previous threshold of 20 million permits.
Furthermore, the reserve can now be activated twice each year. As a result, up to 80 million additional permits could enter the market annually if price conditions require intervention.
The agreement also extends the market stability reserve beyond 2030. Previously, the reserve had been scheduled to expire that year. Policymakers believe the extension will provide longer-term flexibility and help manage future price fluctuations.
ETS2 To Cover Heating And Transport Emissions
The new emissions trading system, known as ETS2, is scheduled to take effect in 2028. It will place a carbon price on emissions generated by heating and transport fuels, encouraging households and businesses to adopt cleaner technologies.
Under the scheme, fuel suppliers and distributors will be required to purchase carbon permits to cover the emissions linked to their products. Consequently, the system is expected to support the transition towards electric vehicles and more efficient home heating solutions.
Revenue generated through ETS2 will be directed towards measures that assist consumers. These include support for household energy bills, incentives for purchasing electric vehicles and investments in energy-efficient home renovations.
Importantly, ETS2 will operate separately from the European Union’s existing emissions trading system. The current framework applies to power plants and heavy industries, while the new system specifically targets heating and transport emissions.
Governments Push For Consumer Protection
Several governments, including those of France and the Czech Republic, warned that ETS2 could face public resistance if consumers viewed it as a driver of higher fuel costs. Therefore, negotiators sought to introduce additional mechanisms to limit excessive price increases.
The revised agreement includes a more gradual release of permits from the market stability reserve. Instead of releasing 100 million permits at once when permits in circulation fall below 210 million, smaller volumes will now become available when the total falls below 260 million permits.
Supporters of the changes argue that a more measured approach will help improve market stability while reducing the risk of sudden supply shocks.
The agreement must still receive formal approval from the European Parliament and EU member states before entering into force in 2028. Meanwhile, the European Commission is expected to present a broader review of ETS2 in July, which could shape the final implementation of the scheme.
With inputs from Reuters