From 2027, car owners across the EU must prepare for significantly higher fuel prices.  The reason is the introduction of the new European emissions trading system ETS2, which will expand carbon emission allowances also to the transport and heating sector. This means that CO₂ emissions from petrol, diesel or natural gas for heating will also have to be paid for – and these costs will be reflected in prices for the end consumer. In this article, we explain clearly what ETS2 is, how emissions trading works, why it is being introduced in transport and heating, and what real impact this may have on fuel prices. At the same time, we will provide specific estimates of price increases (in cents per liter) and consider impacts on households and motorists.

How does Emissions Trading (ETS) work?

Emissions trading system (ETS – Emissions Trading System) is a market mechanism by which the European Union wants to reduce greenhouse gas emissions. It works on the principle of "cap and trade"This means that the EU will set ceiling on total CO₂ emissions in certain sectors and will issue emission quotas (allowances) in an amount corresponding to this limit. Each allowance allows the emission of one tonne of CO₂. Companies operating in these sectors must buy allowances for every ton of CO₂ If a company emits fewer emissions than it has allowances for, it can sell excess quotas another – and vice versa, companies with higher emissions must buy the missing allowances to buy more or face sanctions. At the same time, the number of allowances increases every year gradually decreasesto reduce emissions overall and achieve the set climate target. This system has covered large polluters (e.g. power plants and industry) since 2005 and has become a pillar of EU climate policy.

ETS2: Emission allowances also for transport and heating

ETS2 is the name for a new, separate emissions trading system that the EU will introduce from 2027This is an extension of the principle of emission quotas to areas that were not previously included in the first ETS – namely road transport, fuels for transport and heating of buildings. Practically, this means that fuel suppliers (refineries, distributors of gasoline, diesel, natural gas, heating oil, etc.) will now be obliged buy emission allowances for the CO₂ emissions that result from the combustion of the fuels they sell. Although end consumers (motorists or households) will not have to purchase any allowances directly, suppliers will additional costs for the purchase of allowances in fuel prices. In other words, carbon price is reflected in the price of a liter of gasoline, diesel or cubic meter of natural gas that we buy.

Why is the ETS being expanded to include transport and heating? These sectors produce large amounts of CO₂ emissions (cars, trucks, fossil fuel heating of homes), but so far emissions in them have not been they didn't fall fast enoughThe EU has an ambitious target of reducing overall emissions by 55 % by 2030 (compared to 1990) and achieve climate neutrality by 2050. Without the contribution of transport and buildings, this would not be possible. The introduction of ETS2 is intended to create market motivation also in these sectors: if fossil fuels become more expensive due to the carbon price, households and businesses will have a greater incentive invest in savings and switching to cleaner alternatives – for example, insulate the building, replace the boiler with a more environmentally friendly one, or move to electric car or other low-emission means of transportVoluntary efforts to date have not brought the desired reduction in emissions, so an EU-wide solution is coming in the form of allowances.

Higher gasoline and diesel prices from 2027

The introduction of ETS2 will be reflected in the price of fuel relatively straightforward: if the fuel distributor will pay for the allowances, picks up wholesale fuel price, and drivers will feel it at gas stations. How much will prices increase? According to several estimates, it will each liter of gasoline and diesel more expensive by approximately 10 to 15 centsFor example, a liter of gasoline that currently costs €1.50 could cost around €1.60 – purely as a result of the carbon tax. The resulting price will of course also depend on oil price developments and other factors, but carbon component could be significant. Some more pessimistic scenarios even suggest that fuel prices could return to a level of around €2 per liter – that is, to the values we experienced briefly in 2022 during the peak of the energy crisis.

What are these numbers based on? The market price of emission allowances in the new ETS2 is expected to initially be around €45 per tonne of CO₂Burning one liter of gasoline produces approximately 2.3 kg CO₂, for diesel about 2.6 kg CO₂ (diesel has slightly higher emissions per liter). If we do the math, €45 per ton means approximately 10 cents per liter of gasoline and around 12 cents per liter of dieselThis is in line with the estimates given. However, it should be emphasized that this is a initial price in 2027 – the ETS2 system will have a gradually decreasing emissions cap, which may lead to an increase in the price of allowances after 2030. There is a mechanism in the rules that if the price of an allowance in the first years exceeds €45 (in 2020 prices) or grows too quickly, additional allowances will be released to the market. This should to slow down any sharp price increases at the beginning. However, in the long term, it cannot be ruled out that the carbon price will rise above this limit, which would mean further increase in the price of fossil fuels in later years.

Impacts on motorists and households

For the average motorist, a price increase of ~€0.10 per liter could mean that they will pay about €0.10 more for a full tank (50 liters) of gasoline. €5 more than before. With a typical annual mileage of 10–15 thousand km, the fuel bill can increase by an order of magnitude tens of euros moreover. Freight transport and companies consuming large amounts of fuel will feel the impact even more significantly – fuel makes up a significant part of their budgets (for carriers, often 20–30% of the cost), and every extra cent is reflected in prices for customers. Experts warn that when diesel prices rise, The prices of transportation of goods and various services will also increasewhat is may translate into higher inflationSo the fuel price increase will not only be felt by drivers when refueling – will indirectly affect prices many products (which need to be imported somewhere) and services. For example, food, building materials, or courier services may become slightly more expensive due to higher transportation costs. Climate policy thus has a broader impact on the entire economy, not just on motorists' wallets.

The impacts do not only concern transport, but also household heatingETS2 will also include fuels used for heating buildings – especially natural gas, heating oils and coal. This means that Fossil fuel heating will become more expensive, as gas and coal suppliers will also buy allowances. The specific impact depends on the type and energy efficiency of the household. Analyses by the Environmental Policy Institute suggest that households in older, uninsulated family houses they can pay for heating €300 to €500 more per year (if they heat with gas or coal). On the contrary, in apartment buildings with central gas heating, the increase in costs could be relatively small – it is estimated at under €100 extra per yearOf course, if the household uses electric or renewable heat sources (heat pump, solar collectors, central heat supply from low-emission sources), ETS2 will not affect it directlyThose who depend on burning gas, coal or oil in energy-inefficient buildings will be most affected.

Will there be help for citizens? Part of the revenue from the sale of ETS2 allowances is to flow into the so-called Social and Climate Fund EU. It should serve to compensation for vulnerable households and small businesses – for example, for subsidies for low-income households to pay their energy bills, or for financing programs that help people reduce consumption (subsidies for home insulation, boiler replacement, support for switching to public transport, etc.). Each EU member state is also obliged to use the remaining money from the sale of allowances for climate and social measures and regularly report on how it has used these funds. The aim is to mitigate the impact on the living standards of the most vulnerable groups of the population and ensure a just transition.

What does this mean for Slovakia and ordinary drivers?

From the perspective of an ordinary driver or household, this is undoubtedly unpopular measure – no one wants to pay more at the gas station or for heating at home. That is why the introduction of ETS2 has a political dimension. Slovak government (similar to the Czech Republic) has already expressed reservations about the new system. It currently indicates that in 2027 does not plan to immediately burden motorists with new fees, but first it will only run emissions monitoring phaseThis would mean some impact delay – at least for a transitional period, prices would not have to increase in our country unless Slovakia formally applied the charging of emission quotas in the transport sector from the very beginning. However, it is questionable to what extent individual states will be able to afford to postpone the application of common EU rules. In the event that Slovakia does indeed not join the transport allowance system for a longer period, Fuel prices in our country would remain lower than in surrounding countries. However, this could lead to “fuel tourism” – drivers from neighboring countries would drive to refuel here, similar to what we saw in the past with regulated prices in Hungary. However, in the long term, we will probably not avoid the trend of rising fossil fuel prices.

Summarized and underlined: From 2027, a new factor will come into play affecting the prices of gasoline, diesel, and fossil fuels for heating - carbon emission allowances in the ETS2 systemThese will make it more expensive to operate combustion cars and heat homes, with the estimated price increase being around 10-15 cents per liter of fuel (at the current allowance price of ~45 €/ton of CO₂) and hundreds of euros per year for heating older houses. For ordinary consumer This is bad news – higher gas and energy bills can put a strain on the family budget. On the other hand, the EU's intention is to incentivize emission reductions and to finance measures that help people adapt from the collected fees (for example, subsidizing energy-saving solutions). Whether we agree with this or not, it seems that The era of cheap fossil fuels is ending. a air pollution price will increasingly be reflected in our everyday costs. Ordinary motorists and households should prepare for this in good time – whether by planning more fuel-efficient operations, investing in energy savings, or considering switching to greener alternatives, which will be increasingly advantageous in the long term. Green transformation It is also coming to gas stations and boiler rooms, and from 2027 we will all feel it in our wallets. Spring

Sources:

• Official information from the European Commission on ETS2
• Analysis of the impacts of ETS2 on transport (Biofuel Express)
• TopSpeed.sk and HN news about the expected fuel price increase
• Energie-portal.sk – estimates of increase in heating costs for households