EU Carbon Price Deal Aims to Calm ETS2 Launch

Negotiators move to limit volatility before carbon pricing reaches heating and road fuels in 2028

EU Council and European Parliament negotiators reached an overnight deal on rules meant to steady the bloc’s next carbon market before it begins fully applying to buildings, road transport and additional sectors in 2028. The agreement seeks to reduce price shocks while keeping pressure on governments to protect households and accelerate cleaner heating and mobility.

The provisional agreement, announced by the Council early on Thursday, amends the market stability reserve for ETS2, the EU’s second emissions trading system. The reserve is designed to adjust the number of allowances available in the market when supply and demand move too far out of balance.

For Brussels, the measure is a technical fix with political weight. ETS2 will extend carbon pricing to fuel distributors serving buildings, road transport and some smaller sectors, with costs likely to be felt indirectly by households, drivers and small businesses. That makes price predictability central to whether the system is seen as a credible climate tool or a new cost-of-living flashpoint.

What the deal changes

Under the agreement, the market stability reserve would continue beyond 2030, avoiding a cliff edge in the mechanism just as ETS2 matures. Negotiators also agreed to double, from 20 million to 40 million, the number of allowances released when the ETS2 carbon price exceeds €45 per tonne of CO2 equivalent, calculated in 2020 prices.

The text also aims to make allowance releases more gradual when the number of allowances in circulation drops below 260 million. That change is intended to prevent sudden market reactions around a single threshold.

The deal still needs endorsement by both the Council and Parliament, followed by legal-linguistic checks and formal adoption. EU officials say the amended reserve should be in place before ETS2 becomes fully operational in 2028.

Fairness remains the political test

ETS2 was created under the EU’s Fit for 55 climate package and is meant to help cut emissions from covered sectors by 42% by 2030 compared with 2005 levels. Fuel suppliers will monitor and report emissions from the fuels they sell, then surrender allowances for those emissions as the total supply of allowances declines over time.

But the sectors covered by ETS2 touch daily life directly: home heating, commuting, freight and local services. As The European Times has previously reported, social fairness is key to ETS2’s success, especially for vulnerable households and regions with fewer alternatives to fossil fuels.

Thursday’s agreement includes a reference to using ETS2 auction revenues for climate and energy-transition measures in buildings and road transport. That wording matters because member states will face pressure to channel revenues into renovation, cleaner transport, heat pumps and direct support rather than treating carbon income as ordinary budget relief.

Civil-society groups have warned against weakening ETS2 or delaying it further. Carbon Market Watch said in March that the scheme had already been delayed by one year and called for ambitious and timely implementation, alongside strong social and fiscal safeguards.

A market rule with public consequences

The immediate effect of the agreement is institutional: negotiators have moved one step closer to finalising the rules for ETS2’s reserve. The broader effect will be tested later, when carbon prices, national support schemes and household energy costs meet in the real economy.

If the reserve works as intended, it could reduce the risk of abrupt price spikes while preserving the signal to cut fossil-fuel use. If national governments underinvest in support and alternatives, however, a steadier market may not be enough to secure public trust.

That makes the next phase less about Brussels procedure than delivery: whether Europe can price carbon in everyday sectors while making the transition affordable, visible and fair.