Safeguarding Against Price Spikes
EU member states have agreed to bolster a financial tool designed to prevent sudden surges in carbon prices, ahead of the launch of a new carbon tax covering cars, vans, and buildings. The updated system, part of the EU’s emissions trading scheme (ETS2), will come into full effect in 2028, and households and businesses relying on fossil fuels for heating and transport are expected to face higher costs.
The goal of the changes is to ensure that carbon prices remain stable, avoiding shocks that could disrupt daily life or economic planning. While some countries, including Slovakia and the Czech Republic, have called for a delay until 2030 citing social impacts, others — such as Sweden, Denmark, Finland, the Netherlands, and Luxembourg — have urged that the system proceed as planned to maintain the credibility of EU climate policy.
Updating the Market Stability Reserve
At the heart of this effort is the EU’s Market Stability Reserve, a mechanism that manages the supply of carbon allowances to keep prices predictable. The reserve currently holds 600 million allowances, roughly equal to ten years of expected emission reductions. These can be released into the market if prices climb too high.
Under the new rules, more allowances can be released at a faster pace. Previously, 20 million allowances were triggered when carbon prices exceeded €45 per tonne of CO₂; now, the system allows up to 80 million allowances to be injected annually, ensuring the market remains balanced and preventing sudden spikes.
Balancing Climate Goals and Social Impact
The extension of ETS2 to transport and buildings, first established in 2023, aims to cut emissions in these sectors by 42% by 2030 compared with 2005 levels. The mechanism was originally set to begin in 2027 but was delayed to address concerns about the financial burden on households and businesses.
Officials say the strengthened stability measures, combined with a €3 billion support package from the European Investment Bank to offset rising energy costs, demonstrate the EU’s commitment to a predictable and socially responsible transition to a low-carbon economy. The Council’s agreement will now be reviewed by the European Parliament, which must approve the final rules before the system launches in 2028.
