Governments Seek Stability Ahead of 2028 Rollout
European Union governments have agreed to strengthen a financial safeguard designed to prevent sudden spikes in carbon prices, as the bloc prepares to expand its carbon market to cover road transport and buildings.
The updated system — often referred to as ETS2 — will place a carbon price on fuels used for cars, vans and heating. Once fully in force in 2028, households and businesses that rely on fossil fuels are expected to face higher costs. That prospect has triggered growing political tension across the EU.
To ease concerns, member states decided to extend and reinforce the mechanism that can release extra carbon allowances into the market if prices climb too sharply. The goal is to avoid unpredictable price jumps that could place additional strain on consumers just as the new system begins.
Divisions Among Member States
Not all countries see the path forward in the same way. Slovakia and the Czech Republic have pushed for a delay to the new carbon pricing system until at least 2030, arguing that the social consequences could be severe.
Meanwhile, Sweden, Denmark, Finland, the Netherlands and Luxembourg have taken the opposite stance, warning that postponing or weakening the system would damage the credibility of EU climate policy. In a joint letter dated 18 February, the five countries cautioned that ongoing debates about price controls risk creating uncertainty for households and businesses planning long-term investments.
Alongside the latest reforms, the European Investment Bank recently brought forward €3 billion in funding aimed at helping manage rising energy bills. The move followed pressure from members of the European Parliament who want stronger protections for vulnerable citizens during the transition.
Strengthening the “Safety Valve”
At the heart of the changes is the Market Stability Reserve, a long-term tool created to balance supply and demand in the EU’s carbon market. Originally designed to deal with surplus allowances, it now plays a central role in preventing extreme price swings.
The EU expanded its emissions trading system in 2023 to include transport and buildings, with the aim of cutting emissions in those sectors by 42% by 2030 compared with 2005 levels. Although the mechanism was initially scheduled to begin in 2027, it was postponed over social impact concerns.
Under the revised rules, the EU will be able to inject more allowances into the market, and more frequently, if carbon prices surge. Currently, 20 million allowances are released when prices exceed €45 per tonne of CO₂ (based on 2020 prices). The new plan allows for additional releases, potentially adding up to 80 million allowances per year if needed.
Cyprus’ environment minister, speaking on behalf of the EU presidency, described the move as a clear signal that the bloc is committed to a stable and predictable carbon market. Climate Commissioner Wopke Hoekstra said the adjustments would help keep prices under control while maintaining the EU’s long-term climate goals.
The proposal will now move to the European Parliament for scrutiny. Lawmakers must approve the final version before the expanded carbon market officially launches in 2028.
