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EU plans new measures to prevent ETS 2 from driving up carbon prices. (Photo: iStock)
To ease concerns over potential price surges and volatility in the carbon market, the European Commission has pledged to design additional safeguards for the upcoming Emissions Trading System 2 (ETS 2) on Oct. 21. These may include releasing extra emission allowances, auctioning permits earlier than planned, and providing upfront financing opportunities.
Before the announcement, some EU member states had urged the Commission to postpone the launch of ETS 2 to 2030 to avoid placing excessive pressure on energy-poor nations.
ETS 2 could send EU carbon prices soaring 80%
Set to take effect in 2027, ETS 2 will extend carbon pricing to buildings and road transport—sectors not covered under the current ETS, which focuses mainly on energy and manufacturing. The expanded scope and reduction of free allowances are expected to push carbon prices higher.
Several Central and Eastern European countries, including Cyprus, have voiced concerns that the new market could hurt their economies, given the high cost of energy access and limited public transport options. Some warned that pushing ahead with the current timeline could trigger “social, economic, and political disruption.”
According to BloombergNEF, prices in the new carbon market could reach €149 per ton (about US$173) by 2029, roughly 80% higher than current EU carbon prices.
The EU’s current ETS covers the energy and manufacturing sectors. ETS 2 will expand to include buildings and road transport. (Photo: Unsplash)
EU plans “volume-for-price” mechanism to prevent carbon spikes
Although ETS 2 already includes provisions to prevent excessive price hikes, 19 member states, including France, Italy, Germany, and Poland, called in June for tighter carbon price control to protect households from higher heating and transport costs.
Under mounting pressure, the European Commission on Oct. 21 promised to introduce new stabilization tools. For instance, when prices hit €45 per ton (about US$52), regulators will release additional allowances into the market.
Climate Commissioner Wopke Hoekstra said in a letter to member states that the number of allowances issued could double, reaching 80 million annually between 2027 and 2028.
The Commission also plans to move up allowance auctions to 2026 to give the market more predictable signals and allow member states faster access to carbon revenues. Meanwhile, the European Investment Bank (EIB) is exploring new pre-financing mechanisms to help speed up the adoption of clean heating and mobility technologies and lower participation barriers for low- and middle-income households.
Source: EU Commission, Reuters, Bloomberg
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