Governments Try to Calm Fears Over Rising Energy Bills
European Union countries have agreed to tweak a key financial safeguard to prevent sharp jumps in carbon prices once a new tax on road transport and buildings comes into force. The adjustment is aimed at smoothing out potential shocks when the expanded carbon market — known as ETS2 — begins operating in 2028.
The new system will put a price on emissions from cars, vans, and heating fuels, meaning households and businesses that rely on fossil fuels are likely to see higher costs. That prospect has already stirred political tension.
Some governments are pushing back. Slovakia and the Czech Republic have called for the rollout to be delayed until at least 2030, warning that families could struggle with the added financial burden. On the other side, Sweden, Denmark, Finland, the Netherlands and Luxembourg have publicly rejected any postponement, arguing that delaying the reform would weaken Europe’s climate ambitions.
In a joint letter dated 18 February, the five countries said further changes to the system would damage investor confidence and create uncertainty for businesses and households planning for the green transition.
Strengthening the Carbon Market’s “Safety Valve”
At the center of the agreement is an update to the EU’s Market Stability Reserve — a mechanism designed to prevent extreme volatility in carbon prices by adjusting the supply of emissions allowances.
Originally introduced to deal with excess permits in the carbon market, the reserve acts as a buffer, releasing additional allowances when prices spike. Under the new rules, the EU will extend this safeguard beyond 2030 and expand its capacity to respond to sudden price surges.
Currently, 20 million allowances are released when carbon prices exceed €45 per tonne of CO₂, compared with 2020 levels. The revised plan doubles the amount released at a time and allows for two releases per year. In total, up to 80 million allowances could be injected into the market annually if needed.
About 600 million allowances — equivalent to roughly a decade of emissions-reduction needs — will remain available as a reserve to cushion the market during periods of stress.
Maria Panayiotou, speaking on behalf of the EU Presidency, described the move as a strong signal that Europe is committed to maintaining a stable and predictable carbon market.
Balancing Climate Goals and Social Pressure
The extension of the carbon market to transport and buildings was agreed in 2023 as part of the EU’s broader climate strategy, which aims to cut emissions from those sectors by 42% by 2030 compared to 2005 levels. The mechanism was initially scheduled to start in 2027 but was postponed amid concerns about its social impact.
In response to mounting pressure, the European Investment Bank recently brought forward €3 billion to help ease rising energy costs, particularly for vulnerable households.
Wopke Hoekstra, the EU’s climate commissioner, said the strengthened reserve will make the system more predictable and help keep prices from spiraling. He argued that the changes create the right balance — ensuring the market remains effective while protecting consumers from extreme price shocks.
The proposal must now be examined by the European Parliament, which will need to sign off on the final rules before the new carbon market becomes operational in 2028.
