ETS2 is the European Union's second emissions trading system, created by Directive (EU) 2023/959 to cover the CO2 from fuels used in buildings, road transport and other sectors not covered by the original emissions market. It does not obligate the driver or the homeowner directly: it obligates fuel suppliers (diesel, petrol, natural gas and others), who will pass the cost of the emission allowance on to the final price. Its launch, originally planned for 2027, has been pushed back a year to 2028 through Regulation (EU) 2026/667, which amended the European Climate Law as part of the EU's revised 2040 climate target.
What ETS2 actually is, and who it obligates
The EU's original emissions trading system (the EU ETS, or "ETS1") covers power generation, heavy industry and aviation, with an emissions cap that falls every year and a market for allowances that regulated installations themselves buy. ETS2 applies the same logic to a far more scattered universe that is impossible to regulate installation by installation: millions of homes heated with heating oil or gas, and millions of vehicles filling up with petrol or diesel. To make that workable, the directive moves the obligation upstream, to whoever places the fuel on the market: refineries, importers and wholesale distributors of fossil fuels for heating and transport, not the end consumer.
The practical effect is the same as with any cost passed through in the price: the supplier buys emission allowances for the CO2 represented by the fuels it sells, and that cost gets built into the price of diesel, petrol or gas, in much the same way excise duties on hydrocarbons already work today.
When it actually starts: the delay from 2027 to 2028
Directive (EU) 2023/959's original timeline set the start of the obligation to surrender emission allowances (the phase that actually hits prices) at 2027, after a preceding monitoring and reporting phase that has already been mandatory for regulated entities since 2025. In 2025, EU institutions agreed to push that start back by a year, and Regulation (EU) 2026/667, which entered into force on 7 April 2026 and amended Regulation (EU) 2021/1119 (the European Climate Law) as part of the package setting the 90% net emissions reduction target for 2040, formalized the delay: ETS2 now starts in 2028, not 2027.
Under the new timeline, the obligation to surrender allowances for emissions generated during 2028 falls due in 2029, following the same report-one-year, surrender-the-next mechanics already used by the original emissions market. The monitoring and reporting phase for suppliers, by contrast, was not affected by the delay and has continued since 2025.
Timeline, milestone by milestone
| When | What happens |
|---|---|
| 2023 | Directive (EU) 2023/959 is adopted, creating ETS2 alongside other reforms to the EU's carbon market. |
| From 2025 | Fuel suppliers begin monitoring and reporting their emissions, with no obligation yet to buy allowances. |
| 7 April 2026 | Regulation (EU) 2026/667 enters into force, formalizing the one-year delay of ETS2's start, from 2027 to 2028, as part of the revised EU 2040 climate target. |
| 2028 | The obligation to buy emission allowances for fuel placed on the market that year begins. |
| 2029 | First surrender of allowances corresponding to 2028 emissions, following the same report-and-surrender cycle as the original emissions market. |
This delayed timeline gives companies with their own fleet or buildings one or two extra years compared with the directive's original design to plan consumption reductions before the carbon cost reaches fuel prices. It is worth watching for further official guidance as 2028 approaches, since the reference price used in any cost scenario today is only a placeholder until the market actually opens and a real allowance price appears.
The price stability mechanism
To avoid a sharp price spike for the emission allowance in its early years of operation, ETS2 includes its own dedicated market stability reserve, which can release additional allowances if the price exceeds a reference threshold of €45 (at 2020 prices) or rises too quickly in a short period. It is a mechanism built specifically to cushion the pass-through of cost to the final price of fuels during the system's start-up phase.
The Social Climate Fund
Alongside ETS2, the EU created the Social Climate Fund, largely financed by revenue from ETS2 allowance auctions plus co-financing from member states, with the goal of mobilizing at least €86.7 billion between 2026 and 2032 to help vulnerable households and small businesses cope with the cost of the transition: energy efficiency, clean heating and access to low-emission transport. It is the piece meant, on paper, to offset the regressive effect of putting a carbon cost on the price of heating a home or filling a tank.
What a company with fleet or buildings should do
Even though ETS2 does not directly obligate the company consuming the fuel, it will affect its bottom line once the supplier starts passing the cost through, likely from 2028. Three sensible steps to prepare:
- Build a cost scenario, not an exact forecast. Take a hypothetical reference allowance price (for example, the €45-per-tonne threshold that triggers the stability mechanism, clearly labeled as an assumption and not an official forecast) and apply it to your fleet's and buildings' current diesel, petrol or gas consumption to estimate the order of magnitude of the budget impact.
- Prioritize reducing consumption over hedging the risk. Every liter of fuel not consumed is a liter that will not pay the ETS2 cost, so energy efficiency measures in buildings and steps to reduce the carbon footprint of logistics now carry an additional payback.
- Tie it to your reduction plan if RD 214/2025 applies to you. The five-year reduction horizon Spain's rule requires is the natural framework for building in ETS2's expected effect on fuel cost, rather than treating it as a separate surprise. Our guide on how to build a decarbonization plan explains how to structure that five-year horizon with quantified targets.
How it relates to low-emission zones
ETS2 and low-emission zones act on the same fleet from different angles: low-emission zones restrict physical access for certain vehicles to specific urban areas, while ETS2 makes fuel more expensive regardless of where the vehicle drives. For a fleet operator, both incentives point the same way: accelerating the shift to zero- or low-emission vehicles cuts both the risk of restricted access and the exposure to future carbon costs baked into fuel. Building both considerations into a single fleet renewal business case, rather than evaluating each rule separately, tends to produce a stronger and easier internal case than either one on its own.
Frequently asked questions
Is ETS2 already raising petrol and diesel prices?
Not yet. The phase that passes a real cost through to prices starts in 2028, after the one-year delay formalized by Regulation (EU) 2026/667. Until then, suppliers are only required to monitor and report their emissions.
Do I need to register my company under ETS2?
No, unless your business is a supplier, importer or wholesale distributor of heating or transport fuels. Every other company only feels it as a cost passed through in the fuel price.
How much will ETS2 push fuel prices up?
There is no reliable figure to give yet: it depends on the price the allowance reaches on the market once it launches in 2028, with the stability mechanism acting as a cushion if it exceeds the reference threshold. Any specific number circulating today is an estimate, not a settled figure.
Does ETS2 replace excise duties on hydrocarbons?
No, it is added on top of them. ETS2 is an emissions allowance market, not a carbon emissions tax, even though its final economic effect on the fuel price is comparable. The two mechanisms are legally separate, are collected by different actors, and can change on different schedules, so a fuel price forecast that mixes them into one line risks becoming outdated the moment either one moves independently.
What happens to 2025-2027 emissions if the market does not start until 2028?
Suppliers already have to monitor and report their emissions from 2025, even though the obligation to buy and surrender allowances for those emissions does not kick in until the 2028 fiscal year, with surrender due in 2029. That reporting period is not wasted time: it is what lets suppliers, and by extension their business customers, build a track record of actual consumption to work from once real allowance prices appear.
Building this kind of carbon cost scenario into a company's reduction plan, alongside the fuel and refrigerant data that already feed the rest of the inventory, is part of what our carbon footprint solution helps with.
