Preparing for the ETS2 Launch
EU countries have agreed to update the rules of their carbon market to prevent sudden spikes in carbon prices ahead of a new tax on cars, vans, and buildings. The updated mechanism will extend beyond 2030 to ensure that when the system comes into effect in 2028, prices remain manageable for households and businesses relying on fossil fuels for heating and transport.
While some member states, including Slovakia and the Czech Republic, have called for delays due to social concerns, countries such as Sweden, Denmark, Finland, the Netherlands, and Luxembourg have pushed back. They warn that postponing or weakening the system could undermine EU climate goals and create uncertainty for investments.
How the Market Stability Reserve Works
Central to the plan is the Market Stability Reserve, the EU’s long-term tool for balancing supply and demand in the carbon market. It acts as a safety valve, releasing allowances when prices rise too quickly. Under the new rules, up to 80 million allowances can now be added twice a year if prices spike, compared with the previous 20 million per release. The reserve currently holds 600 million allowances, roughly equal to ten years of emission reductions, providing a substantial buffer to stabilize the market.
The ETS2 extension, introduced in 2023, aims to cut emissions in transport and buildings by 42% by 2030 compared with 2005 levels. Its original 2027 start was delayed due to concerns over affordability for citizens.
Balancing Climate Goals and Social Impact
EU officials emphasize that these changes will make the carbon market more predictable and help protect households and businesses from sudden price increases. The European Investment Bank has already allocated €3 billion to support those affected by rising energy costs.
Next, the European Parliament will review and approve the final rules, ensuring ETS2 is ready to launch in 2028. Officials hope the updated system will drive emissions reductions while keeping prices stable and providing certainty for the economy.
