Preparing for ETS2 and Rising Energy Costs
EU member states have agreed to strengthen a key mechanism designed to prevent sudden spikes in carbon prices, ahead of the introduction of a new carbon tax on cars, vans, and buildings in 2028. The updated system, part of the European Union’s emissions trading scheme (ETS2), aims to keep prices from jumping too high, helping households and businesses manage rising costs for heating and transport.
Some countries, including Slovakia and the Czech Republic, have called for the tax to be postponed until 2030 due to concerns over its social impact. Meanwhile, Sweden, Denmark, Finland, the Netherlands, and Luxembourg oppose any delays, warning that weakening ETS2 could undermine climate policy and create uncertainty for investments.
Adjusting the Market Stability Reserve
Central to the plan is the Market Stability Reserve, the EU’s long-term tool for managing surplus carbon allowances. This reserve acts as a safety valve, rebalancing supply and demand and preventing sharp price spikes.
Currently, 20 million allowances are released when the carbon price exceeds €45 per tonne of CO₂. Under the new rules, each release will be increased by an additional 20 million allowances and can occur twice a year, allowing up to 80 million allowances to stabilize the market. The reserve currently holds 600 million allowances, enough to cover roughly ten years of emission-reduction needs.
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 to 2005 levels. Its start was delayed from 2027 over concerns about affordability for households.
Balancing Climate Goals and Social Fairness
EU officials stress that the updated reserve will ensure a stable and predictable carbon market while protecting consumers from excessive price jumps. The European Investment Bank recently added €3 billion to support households with rising energy costs, reflecting pressure from lawmakers to protect the most vulnerable.
The Council’s position on the reserve will now be reviewed by the European Parliament, which must approve the final rules before ETS2 officially launches in 2028. Officials say the measures aim to provide predictability for businesses and households while keeping the EU on track toward a low-carbon future.
