The European Union will launch a new emissions trading system, ETS2, in 2027 to address CO₂ emissions from fuel combustion in buildings, road transport, and small industries not included in the current EU ETS. The system aims to support the EU's climate neutrality target by 2050 and complements existing measures under the European Green Deal and the Effort Sharing Regulation.
ETS2 will operate as a cap-and-trade system similar to the EU ETS but will regulate emissions upstream. Fuel suppliers—not end-users such as households or drivers—will be responsible for reporting emissions and purchasing allowances. The emissions cap is designed to ensure a 42% reduction in emissions by 2030 compared to 2005 levels.
All allowances under ETS2 will be auctioned. Member States are required to use the resulting revenues for climate action and social measures and must report on this spending. A portion of the proceeds will support vulnerable households and small businesses through a dedicated Social Climate Fund.
Preparations for ETS2 will begin in 2025, with monitoring and reporting of emissions. In 2027, a 30% higher volume of allowances will be auctioned to ensure market liquidity. A market stability reserve will help manage supply and demand, with provisions to release additional allowances if prices rise excessively—defined as exceeding €45 (in 2020 prices) or increasing too rapidly.
In case of exceptionally high oil or gas prices in 2026, the ETS2 start date may be postponed to 2028.
Regulated entities must obtain greenhouse gas emissions permits and submit approved monitoring plans by 1 January 2025. From 2026, emissions reports must be verified annually by an accredited verifier. Starting in 2028, companies must surrender allowances corresponding to their verified emissions by 31 May each year.
The ETS2 compliance cycle is governed by the Monitoring and Reporting Regulation (MRR) and the Accreditation and Verification Regulation (AVR). The European Commission provides guidance and templates to support implementation across Member States.
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