Protecting Households and Businesses from Price Shocks
EU countries have agreed to tighten rules that prevent sudden spikes in carbon prices as the bloc prepares to launch its new carbon tax on cars, vans, and buildings. The updated emissions trading system, ETS2, is set to take effect in 2028, and households and businesses that rely on fossil fuels for heating and transport are expected to face higher bills once the system is fully operational.
While some nations, including Slovakia and the Czech Republic, have called for a delay to 2030 due to social impacts, Sweden, Denmark, Finland, the Netherlands, and Luxembourg have pushed back, warning that postponing or weakening ETS2 would undermine the EU’s climate goals. They argue that prolonged uncertainty over price-stabilisation measures could discourage businesses and households from investing in greener alternatives.
Strengthening the Market Stability Reserve
At the heart of the EU’s plan is the Market Stability Reserve, a mechanism designed to balance the supply and demand of carbon allowances and prevent extreme price swings. Originally set up to address excess allowances in the carbon market, the reserve will now act as a safety buffer for ETS2, which was extended to cover road transport and buildings in 2023 as part of the EU’s climate law. The aim is to cut emissions in these sectors by 42% by 2030 compared with 2005 levels.
Under the revised rules, the reserve can release up to 80 million allowances per year — double the previous amount — whenever carbon prices rise above €45 per tonne of CO₂. The total buffer of 600 million allowances, equivalent to roughly ten years of emission reductions, will remain available to smooth out market shocks and keep prices predictable.
Balancing Climate Action and Social Impact
The EU is also taking steps to ease the transition for vulnerable households. The European Investment Bank recently frontloaded €3 billion to help address rising energy costs, responding to pressure from lawmakers concerned about social impacts.
Officials emphasize that these measures signal a commitment to a stable, predictable carbon market while ensuring affordability. The Council’s agreement now moves to the European Parliament for final approval, a necessary step before ETS2 officially launches in 2028.
By strengthening safeguards and providing financial support, the EU aims to advance its climate targets without creating sudden economic burdens for citizens and businesses.
