ETS2 reform will limit price spikes and make redistribution easier, says T&E

The EU Commission last night confirmed that it will keep prices for its upcoming carbon price on road and heating fuels stable, to avoid prices getting out of control. It also confirmed a frontloading mechanism which will allow member states to start redistributing revenues from the scheme straight away. There is now no excuse for governments not to introduce bold redistribution measures, including other complementary actions, which will help low and middle-income households in the transition towards cleaner technologies, says T&E.

Member states can now auction ETS2 allowances as early as 2026 in order to generate revenues before the ETS2 launch in 2027. These revenues can be used by governments to support low-income households by making greener alternatives like public transport and EV leasing schemes more affordable. How many emission allowances can be auctioned in advance this way will be formally specified by the Commission in the coming weeks.

The Commission also addressed concerns that ETS2 prices could spiral out of control by confirming that if the price of a ton of CO₂ in the ETS2 exceeds €45, additional allowances can be gradually released onto the market. This will avoid sharp price spikes, giving households and businesses more certainty, says T&E.

Federico Terreni, climate manager at T&E, said: "A small carbon price on fuel makes a lot of sense, especially now that oil prices are so low. The Commission's proposal would avoid out-of-control ETS2 prices, and keep prices closer to €45-55/tonne which is the current carbon price in Germany and France. It will also make money available that governments can invest in clean transport and buildings immediately. Now governments must stop complaining and get to work so they can properly support low and middle-income families and SMEs when the carbon price kicks in."

EU Commissioner Wopke Hoekstra announced that the formal Commission proposal will be unveiled in a couple of weeks.

ENDS

Note to editors

[1] For more information on frontloading and T&E’s recommendations for how to improve the ETS2, see here.