Drivers and households now know what will cushion them against a carbon-price shock in 2028. On Friday, EU governments gave final approval to a mechanism that pumps extra permits into the market when prices climb.
The decision, adopted by finance ministers in Luxembourg, concerns ETS2, the new carbon market covering fuels used in road transport, buildings, and smaller industries. Fuel suppliers will buy permits for the emissions associated with their products. Households and businesses will not purchase them directly, but could pay through higher petrol, diesel, and heating bills.
Friday’s approval completes a deal struck with the European Parliament in June, which MEPs endorsed in September. The aim is to keep an incentive to switch to cleaner energy while reducing the risk of sharp price increases. The measures strengthen a reserve that can put more permits on the market when supplies tighten.
A brake on prices, not a ceiling
When carbon prices exceed €45 per tonne of CO2, measured in 2020 prices, the revised mechanism will release 40m extra allowances instead of 20m. More permits mean more supply, which should ease upward pressure on their price. But the threshold does not prevent prices from rising above it. Its value is adjusted for inflation.
The agreed adjustments will improve market liquidity, reduce price volatility and strengthen the system’s ability to respond to unwarranted price increases. — Maria Panayiotou, Cyprus’s environment minister
“The agreed adjustments will improve market liquidity, reduce price volatility and strengthen the system’s ability to respond to unwarranted price increases,” Maria Panayiotou, Cyprus’s environment minister, said when the agreement was reached in June. Cyprus then held the rotating Council presidency and led the talks. The changes also keep the reserve operating beyond 2030 and allow more gradual releases when allowances become scarce.
The decision will enter into force 20 days after its publication in the EU’s Official Journal. The safeguards aim to cushion the impact of ETS2 from 2028, but cannot guarantee how much drivers and households will ultimately pay. By October 2027, the Commission must also assess how the system works and whether it does enough to protect vulnerable households.
Separately, eurozone finance ministers backed targeted help with high energy bills on Thursday. The Commission warned that broad subsidies could push prices higher.
