Preparing for ETS2 and Price Stability
EU countries have agreed to strengthen a key tool designed to prevent sudden spikes in carbon prices, ahead of the introduction of a new carbon tax on cars, vans, and buildings. The updated system, part of the EU’s emissions trading scheme (ETS2), is set to take effect in 2028 and aims to help households and businesses manage costs while encouraging emissions reductions.
Some member states, including Slovakia and the Czech Republic, have called for delaying the tax until 2030 due to concerns over its social impact. Meanwhile, Sweden, Denmark, Finland, the Netherlands, and Luxembourg pushed back against postponements, arguing that delaying or weakening ETS2 would undermine EU climate policy and create uncertainty for investments.
How the Market Stability Reserve Will Work
At the heart of the plan is the Market Stability Reserve, the EU’s long-term mechanism for balancing supply and demand in the carbon market. It acts as a safety valve to prevent price shocks by releasing extra allowances when prices rise too quickly.
Currently, 20 million allowances are added when the carbon price exceeds €45 per tonne of CO₂. Under the new rules, releases will double, allowing up to 80 million allowances to enter the market each year to prevent sudden spikes. The reserve currently holds 600 million allowances — enough to cover roughly ten years of emissions reductions — providing a buffer for future market pressures.
The ETS2 expansion, created in 2023 as part of the EU climate law, targets a 42% cut in emissions from transport and buildings by 2030 compared with 2005 levels. Its launch was delayed from 2027 due to concerns about affordability for households and businesses.
Balancing Climate Goals and Affordability
EU officials stress that the changes signal a commitment to a stable and predictable carbon market while keeping energy costs manageable. The European Investment Bank recently injected €3 billion to help vulnerable households cope with rising energy bills, reflecting pressure from lawmakers to ensure the transition remains fair.
The Council’s agreement now goes to the European Parliament for approval before ETS2 officially begins in 2028. The challenge will be to maintain a market that drives emission cuts while protecting both consumers and investors from sudden price shocks.
