ETS2: Preparing for Europe’s New Carbon Market for Buildings, Transport, and Small Industry

A new phase of European carbon pricing is approaching, and it will reach far beyond the power plants and heavy industry that have operated under the EU Emissions Trading System since 2005. The EU Emissions Trading System 2 (ETS2) extends carbon pricing to fuel combustion in buildings, road transport, and smaller industrial installations—sectors that together account for a substantial share of Europe’s emissions and that, until now, have largely sat outside cap-and-trade regulation. At [Company Name], we help regulated entities, energy suppliers, and downstream businesses understand exactly what ETS2 means for them, and build the compliance infrastructure needed to meet it.

What ETS2 Is—and Why It Is Different From the Original EU ETS

ETS2 was created under the EU’s “Fit for 55” package as a distinct, separate cap-and-trade system, operating independently from the original EU ETS market. Rather than regulating end users directly, ETS2 operates upstream: it is fuel suppliers, rather than households or individual drivers, who are required to monitor and report emissions and surrender allowances. This upstream design means the direct compliance burden falls on a comparatively small number of regulated entities—fuel and heating suppliers—while the resulting carbon cost is expected to filter through to end consumers via fuel and heating prices.

The EU-wide cap for 2027 was originally set at 1,036,288,784 allowances for the EU-27 and EEA-EFTA states, based on average emissions from 2016 to 2018. The system is designed to bring emissions in these sectors down by 42% by 2030 compared with 2005 levels, with all allowances distributed exclusively through auctioning rather than free allocation.

A Timeline in Motion: The 2028 Start Date

One of the defining features of ETS2 compliance planning right now is that the start date itself has moved. Originally intended to become operational in 2027, EU co-legislators agreed in November 2025 to delay ETS2 by one year, pushing full operation to 2028, with the final legislative decision on this postponement confirmed by the Council and Parliament in March 2026. The stated rationale is to allow more time for structural decarbonisation measures and for Member States to prepare their Social Climate Plans, while the Commission has also proposed adjustments to the market stability reserve to support a smoother start.

This shift matters enormously for compliance planning. The obligations building toward that 2028 start date, however, have not been delayed in the same way:

• Greenhouse gas emissions permits and approved monitoring plans were required from regulated entities by 1 January 2025.
• Annual emissions reporting is already underway, with reports due by 30 April each year.
• From 2026, reported emissions must be verified by an accredited verifier—a step that introduces a new layer of assurance and documentation burden.
• From 2028, regulated entities must surrender allowances matching their verified annual emissions by 31 May of the following year.

In other words, the compliance clock is already running even though the market itself does not go live until 2028.

Price Stability Mechanisms Every Regulated Entity Should Understand

ETS2 has been designed with several safeguards intended to prevent excessive price volatility in its early years:

• A 30% higher volume of allowances will be auctioned in the system’s first year to provide market liquidity.
• During the first years of operation, if allowance prices exceed roughly €45 (in 2020 prices, adjusted for inflation), or rise too rapidly, additional allowances may be released from a dedicated market stability reserve.
• Alongside the market itself, the Social Climate Fund was established to ease the social and economic effects of ETS2, supporting vulnerable households and micro-enterprises facing energy or transport poverty through measures such as building energy efficiency improvements, clean heating, and access to low-emission vehicles.

Understanding how these mechanisms interact—and how they might behave under different market conditions—is essential for any organisation trying to forecast its future compliance costs.

Who Needs to Act, and How We Help

Fuel Suppliers and Regulated Entities
For businesses placing petrol, diesel, natural gas, or heating fuels on the market, ETS2 compliance is not optional. We support clients in obtaining the required emissions permits, establishing approved monitoring plans, and preparing for the transition from self-reported to independently verified emissions data from 2026 onward.

Real Estate and Facility Portfolios
Because heating fuel costs will rise as suppliers pass through carbon costs, building owners and facility managers face indirect but significant financial exposure. We help clients model the likely cost impact under different carbon price scenarios and prioritise energy efficiency and heat pump investments that reduce long-term exposure—work that connects directly to obligations under the Energy Performance of Buildings Directive.

Transport and Logistics Operators
Fleet operators and logistics businesses will feel ETS2’s effects through fuel pricing. We help these clients quantify likely cost trajectories and evaluate the business case for transitioning to low- or zero-emission vehicles ahead of the market’s full operation.

Cross-Border Organisations
Because national policies—such as Germany’s transitional national carbon pricing system—must eventually align with ETS2, organisations operating across multiple Member States face a patchwork of interim rules before 2028. We help clients navigate these transitional arrangements without incurring duplicate or conflicting carbon costs.

Our Approach

1. Exposure and Applicability Assessment — We determine whether and how a client qualifies as a regulated entity, or how exposed their operations are to pass-through costs from suppliers.
2. Monitoring, Reporting, and Verification Readiness — We help establish the internal systems and documentation needed to meet permit, monitoring plan, and verification obligations well ahead of statutory deadlines.
3. Cost Scenario Modelling — We build forward-looking cost models reflecting different allowance price trajectories, informed by the system’s built-in stability mechanisms.
4. Investment Prioritisation — We help clients sequence decarbonisation investments—building retrofits, heat pumps, fleet transitions—to reduce long-term exposure to rising carbon costs.
5. Regulatory Monitoring — Given how recently the 2028 start date was confirmed, and the ongoing discussions around the market stability reserve, we provide continuous tracking of legislative developments so clients are never caught off guard by further changes.

A Market Still Taking Shape

ETS2 is unusual among major EU climate policies in that its implementation timeline has already shifted once, and further technical adjustments to its stability mechanisms remain under discussion. For businesses across the fuel supply chain, real estate, and transport sectors, this is precisely the moment to build compliance capability and cost-modelling discipline—before the market goes live and the pressure to act becomes immediate. Our team is ready to help clients turn this preparation period into a genuine strategic advantage.