Preparing for ETS2 and Carbon Costs
EU countries have agreed to update a key tool to prevent sudden jumps in carbon prices, ahead of the new carbon tax on cars, vans, and buildings set to start in 2028. This revision will extend the bloc’s market stabilization mechanism beyond 2030, helping ensure households and businesses do not face sharp increases in energy costs as the updated emissions trading system (ETS2) comes into full effect.
The move comes amid a debate over the law’s social impact. Slovakia and the Czech Republic have pushed to delay the carbon tax until 2030, while Sweden, Denmark, Finland, the Netherlands, and Luxembourg argue that postponements would weaken EU climate goals and create uncertainty for businesses and households.
How the Market Stability Reserve Works
At the heart of the plan is the Market Stability Reserve, the EU’s long-term system for balancing supply and demand in the carbon market. Its purpose is to prevent excessive price spikes by releasing allowances when prices rise too quickly. Currently, 20 million allowances are released if the carbon price exceeds €45 per tonne of CO₂. Under the new rules, this release will double to 40 million allowances per event and can occur twice a year, meaning up to 80 million allowances could enter the market to stabilize prices.
The reserve currently holds 600 million allowances, equivalent to roughly ten years of emission reduction needs, serving as a critical buffer against market shocks. ETS2 was extended in 2023 to cover road transport and buildings, aiming to reduce emissions from these sectors by 42% by 2030 compared to 2005 levels. Its implementation was initially scheduled for 2027 but delayed due to concerns over affordability for consumers.
Balancing Climate Action with Social Fairness
EU officials stress that strengthening the reserve signals a commitment to a stable and predictable carbon market, while also helping households cope with rising energy costs. The European Investment Bank recently added €3 billion to support those most affected, reflecting pressure from lawmakers to ensure a fair transition.
The Council’s agreed position will now go to the European Parliament for approval before ETS2 launches in 2028. Officials say the changes create the right conditions to keep carbon prices in check, making the path toward a low-carbon future more predictable and affordable for both businesses and citizens.
