EU Council Proposes to Delay EU ETS2 Under 2040 Emissions Reduction Target

As part of the broader package tied to the bloc’s 2040 emissions reduction target, the European Commission voted to delay the start of its upcoming carbon market for fuels used in transport and buildings, known as ETS2, to 2028. The 2040 target aims for a 90% cut in greenhouse gas emissions from 1990 levels. While originally planned for 2027, the delay is viewed by many as a practical step to ensure smoother implementation, greater policy coordination, and stronger social safeguards as Europe expands carbon pricing across its economy

Affordability remains a key concern, and policymakers aim to ensure the interests of households and small businesses are protected. Central and Eastern European countries were among the strongest advocates for postponement, arguing that more time is needed to phase in price impacts and strengthen social mitigation measures.

The extra time also allows countries with existing national fuel carbon pricing schemes, such as Germany, France, and Sweden, to better align their systems with ETS2 and avoid double carbon pricing. Meanwhile, upstream fuel distributors gain breathing room to establish monitoring, reporting, and verification (MRV) systems to ensure compliance readiness ahead of the market’s eventual rollout.

Still, uncertainty remains over how the delay will be implemented, given that the 2027 start date is embedded in the EU ETS Directive. Analysts expect the postponement to keep ETS2 prices lower for longer, suggesting slower abatement in transport and buildings. The final outcome will hinge on approval by the European Parliament, where conservative factions are already pushing to soften the EU’s 2040 emissions reduction target. We should have more clarity by the end of this week, as Parliament is expected to vote November 12, followed by trilogue negotiations on the final text.

What is the EU ETS2?

• EU ETS2 is expected to cover ~1.2 B tons of emissions from fuel consumption in transport, buildings, and small industry, extending carbon pricing to 80% of the bloc’s economy to support the EU’s 90% emissions reduction target by 2040.
• It will operate independently from the main market because the ETS2 targets sectors with direct household exposure unlike ETS1 where costs are largely internalized in production, necessitating tailored rules, a soft price cap, and social support mechanisms.
• A tighter cap adjustment factor, no free allocations, and more inelastic demand (limited abatement options for fuel use) are expected to drive higher initial EUA2 prices.
• A portion of revenue from the ETS2 will be directed toward the Social Climate Fund to provide direct income support, energy-efficiency investments, clean heating, and low-emission mobility across the EU.

Carbon Market Roundup

The weighted global price of carbon was $55.32, down 0.2% week over week. EUAs were up 1.2% over the week at €79.47. UKAs were down 1.6% at  £55.35. CCAs were down 5.2%, closing the week at $30.37. RGGI was up 5.2% at $26.70. WCAs were up 1.3% at $66.50.