The European Commission is taking strong steps to ensure predictability and stability for a key pillar of decarbonisation – the new Emissions Trading System for Buildings and Road Transport (ETS 2). This system is essential for a set of policies aimed at decarbonisation of the economy, while emphasizing technological neutrality and competitiveness, in line with the objectives of the Competitiveness Compass.

ETS 2 is intended to extend emissions trading to sectors such as road transport and building heating. While the current framework of the system already contains strong safeguards designed to ensure a smooth start-up and to effectively control carbon price developments, the Commission has intensively assessed further ways to strengthen the stability and predictability of the ETS 2 regulatory framework before its launch.

The Commission is responding to concerns about future carbon price levels and their volatility. The initiative follows letters from 19 Member States and many Members of the European Parliament, highlighting the potential negative impacts of ETS 2 on people and businesses.

Commissioner for Climate Action, Net Zero Emissions and Clean Growth, Wopke Hoekstra, announced at the Environment Council on 21 October that the Commission will soon present a package of proposals. The package aims to address price volatility while helping to accelerate the investments needed before the launch of the ETS 2 market.

The proposed measures focus on three main pillars, which together aim to stabilise the market and ensure long-term predictability:

Firstly, the Commission is planning targeted changes to the Auctioning Regulation. These adjustments are intended to allow earlier start of auctions under ETS 2. The earlier start of auctions is intended to provide a more predictable price signal to the market and at the same time allow Member States earlier access to carbon revenues.

Secondly, the Commission, in cooperation with the European Investment Bank (EIB), is exploring the introduction of a new ETS 2 frontloading instrument, specifically designed for Member States. The purpose of this instrument will be to pre-finance decarbonisation measures with a view to accelerate the introduction of clean technologies in the field of heating and mobility.

This instrument also has an important social dimension: it is designed to improve the availability of clean technologies for low and middle income households and supported the effective implementation of the Social Climate Fund.

Finally, the Commission proposes targeted adjustments to the Market Stability Reserve (MSR) Decision. These adjustments would substantially strengthen the mechanism's capacity to intervene. Specifically, the Commission presented five mechanisms, which would be triggered if the price of an ETS 2 emission allowance exceeded the level 45 euros.

The adjustment of the MSR aims to increase its long-term capacity and enable it to act sooner and more smoothly to stabilize the supply of ETS 2 allowances. Thanks to these measures, the price of allowances should be predictable and stable in the long term.

The Commission services are now actively preparing the necessary legal proposals with a view to their swift adoption by the Commission. These steps confirm the EU's commitment to creating a robust and stable ETS 2 market that effectively supports the green transition while protecting citizens and businesses. Co2AI