EU Emissions Trading System 2 (EU ETS 2)
The EU ETS 2 is distinct from the existing EU Emissions Trading System (EU ETS), which has covered emissions from energy, industry, and aviation since 2005. ETS 2 was introduced as part of the Fit for 55 package through a revision of the EU Emissions Trading Directive (Directive (EU) 2023/959) and forms a separate, additional trading system for the buildings, road transport, and other, mostly smaller industrial sectors not yet covered by the existing EU ETS.
Unlike the original EU ETS, ETS 2 does not target individual households or vehicle owners directly, but rather operates upstream at the level of fuel suppliers: importers, producers, and distributors of heating oil, natural gas, petrol, diesel, and other fossil fuels must acquire emissions allowances corresponding to the carbon content of the volumes they place on the market. The resulting costs are typically passed through to end consumers via fuel and heating prices.
A price stabilization mechanism was set up for the initial phase of ETS 2: if the allowance price rises above a defined threshold of around EUR 45 (at 2020 price levels, equivalent to roughly EUR 55 at 2025 prices), additional allowances can be released from a market stability reserve until 2029 to dampen excessive price increases. ETS 2 was originally intended to become fully operational in 2027; however, the Council of the EU decided to delay this by one year to 2028 after several member states raised concerns about the burden on low-income households. A Social Climate Fund was set up alongside this, financed mainly from the proceeds of ETS 2 allowance auctions, to support households and micro-enterprises affected by energy or mobility poverty.
Fuel suppliers are directly obligated to participate, having to monitor, report, and verify emissions and surrender allowances. Indirectly, however, ETS 2 affects virtually all companies and households through rising heating and fuel costs. Manufacturing companies should factor the additional energy costs expected from 2028 into their cost and decarbonization planning early on.
