Preparing for ETS2 and the Carbon Tax
EU countries have agreed to strengthen the bloc’s mechanism to control sudden spikes in carbon prices, as the European Union prepares to roll out a new carbon tax covering road transport and buildings. The updated system, known as ETS2, is set to take effect in 2028 and will put a price on fuels used in homes, cars, and vans.
Households and businesses that rely on fossil fuels are expected to face higher bills once the system is fully implemented, which has fueled debate among member states. Slovakia and the Czech Republic have pushed to delay the tax until at least 2030, citing potential social impacts. In contrast, Sweden, Denmark, Finland, the Netherlands, and Luxembourg argue that any delay or amendment could weaken the EU’s climate goals and create uncertainty for investments.
Adjusting the Market Stability Reserve
Central to the plan is the EU’s Market Stability Reserve, a tool designed to manage supply and demand for carbon allowances and keep prices stable. The Council has agreed to extend the reserve beyond 2030 and increase its capacity to respond to market pressures.
Currently, 20 million allowances are released when carbon prices exceed €45 per tonne of CO₂ (based on 2020 prices). Under the new rules, releases will double to 40 million allowances and can occur twice a year, meaning up to 80 million allowances could be injected to prevent sharp price spikes. The reserve already holds 600 million allowances, enough to cover roughly ten years of expected emission reductions.
Balancing Stability and Climate Goals
Officials say the changes will create a more predictable and affordable carbon market while keeping the EU on track for its climate targets, which aim to cut emissions from transport and buildings by 42% by 2030 compared with 2005 levels.
The decision follows a €3 billion advance from the European Investment Bank to help households and businesses cope with rising energy costs. The Council’s position will now be reviewed by the European Parliament, which must approve the final rules before ETS2 begins in 2028.
Commissioner Wopke Hoekstra emphasized that the measures “set the right conditions to keep prices in check and intervene swiftly if they go too high,” ensuring a stable transition toward a low-carbon future.
