Governments Try to Calm Fears Over Rising Bills
European Union governments have agreed to strengthen a financial safeguard aimed at preventing sharp spikes in carbon prices, as the bloc prepares to roll out a new carbon market covering road transport and buildings.
The updated system — often referred to as ETS2 — will place a carbon price on fuels used in cars, vans and home heating. Once fully in force in 2028, households and businesses that rely on fossil fuels are expected to face higher costs. That prospect has already sparked political tension across the EU.
To avoid sudden price shocks, member states have decided to extend and reinforce a mechanism that can release additional carbon allowances into the market if prices rise too steeply. The move is intended to provide greater predictability and soften the financial impact once the scheme begins.
Not everyone agrees on the timing. Slovakia and the Czech Republic have called for a delay until at least 2030, arguing that the social consequences could be severe. Meanwhile, Sweden, Denmark, Finland, the Netherlands and Luxembourg have pushed back firmly against any postponement. In a joint letter dated 18 February, the five countries warned that further delays would weaken EU climate policy and create uncertainty for businesses and households planning investments.
The decision also follows a recent €3 billion frontloading by the European Investment Bank, designed to help ease pressure from rising energy costs and support vulnerable groups during the transition.
Tweaking the Market’s “Safety Valve”
At the heart of the changes is the EU’s Market Stability Reserve — a long-term tool designed to manage the supply of carbon allowances and prevent major imbalances in the carbon market.
The extension of carbon pricing to transport and buildings was agreed in 2023 as part of the EU’s broader climate law. The aim is ambitious: cut emissions from these sectors by 42% by 2030 compared with 2005 levels. The system was originally due to begin in 2027 but was pushed back after concerns about its impact on consumers.
Under the revised plan, the 600 million allowances currently held in reserve — roughly equivalent to a decade’s worth of emission-reduction needs — will remain available as a buffer if the market comes under strain.
At present, 20 million allowances are released when carbon prices exceed €45 per tonne of CO₂ (in 2020 price terms). The new rules double the potential intervention. An extra 20 million allowances can be added per release, and releases can happen twice a year. In total, up to 80 million allowances could be injected annually to prevent extreme price jumps.
Cyprus’ environment minister, Maria Panayiotou, speaking on behalf of the EU Presidency, said the adjustment sends a strong signal that the bloc is committed to a stable and predictable carbon market.
Balancing Climate Ambition With Affordability
Climate Commissioner Wopke Hoekstra described the updated safeguards as a way to strengthen both stability and affordability within the new system. The goal, he said, is to keep prices under control while preserving a clear path toward a low-carbon economy.
Still, the debate is far from over. The Council’s position must now be reviewed and approved by the European Parliament before the final rules are adopted. Only then will ETS2 officially move toward its 2028 launch.
For EU leaders, the challenge is clear: keep climate targets on track while convincing citizens that the green transition won’t come at an unbearable cost.
