Preparing for Carbon Price Stability
EU countries have agreed to adjust a financial mechanism aimed at preventing sharp spikes in carbon prices as the bloc gears up for a new carbon tax on cars, vans, and buildings. The updated system, part of the European Union’s emissions trading scheme (ETS2), is set to launch in 2028 and is expected to raise energy costs for households and businesses that rely on fossil fuels for heating and transport.
Member states will extend the price-stabilization mechanism beyond 2030 to ensure carbon prices remain manageable. While Slovakia and the Czech Republic have called for delays due to social concerns, Sweden, Denmark, Finland, the Netherlands, and Luxembourg have pushed back, warning that any postponement could weaken EU climate policy and create uncertainty for investment decisions.
Strengthening the Market Stability Reserve
The Market Stability Reserve, the EU’s long-term tool for rebalancing carbon allowance supply and demand, will play a central role in preventing price shocks. Under the new rules, 20 million allowances will be released whenever carbon prices exceed €45 per tonne of CO₂, with releases now doubled and increased by another 20 million allowances each time. This means the market can receive up to 80 million allowances annually to stabilize prices.
Currently, the reserve holds 600 million allowances, roughly equivalent to ten years of emission reductions, serving as a buffer for future market pressure. The extension of ETS2 to road transport and buildings aims to cut emissions in these sectors by 42% by 2030 compared with 2005 levels. Initially scheduled to start in 2027, the mechanism was delayed due to concerns over affordability for households.
Balancing Climate Goals and Affordability
Officials say the updated system signals the EU’s commitment to a predictable and stable carbon market while protecting consumers from sudden cost surges. A recent €3 billion support package from the European Investment Bank was introduced to help households manage rising energy bills, addressing pressure from lawmakers to protect the most vulnerable during the transition.
The Council’s decision will now go to the European Parliament for final approval before ETS2 officially begins in 2028, aiming to ensure the carbon market drives emissions reductions while keeping prices in check and maintaining investor confidence.
