Extending a Safety Net Before the New Carbon Market Begins
European Union governments have agreed to strengthen and extend a key financial safeguard aimed at preventing sharp spikes in carbon prices, as the bloc prepares to roll out a new carbon market covering road transport and buildings.
The updated system, known as ETS2, will put a carbon price on fuels used for heating homes and powering cars and vans. Once it comes fully into force in 2028, households and businesses that rely on fossil fuels are expected to feel the impact through higher energy and transport costs.
To avoid sudden price shocks, EU countries decided to prolong the bloc’s price-stabilising mechanism beyond 2030. The move is intended to reassure citizens and businesses that the transition to cleaner energy won’t trigger uncontrollable jumps in carbon costs.
The debate around the new carbon market has intensified in recent months. Slovakia and the Czech Republic have called for a delay until at least 2030, warning of social consequences. Meanwhile, Sweden, Denmark, Finland, the Netherlands and Luxembourg have publicly opposed any postponement, arguing that weakening or delaying the system would damage the credibility of EU climate policy and create uncertainty for investors.
How the Market Stability Reserve Will Work
At the centre of the changes is the Market Stability Reserve, a long-term tool designed to balance supply and demand in the EU carbon market. Its purpose is to step in when there is either a surplus of emissions allowances or when prices rise too quickly.
The extension of carbon pricing to transport and buildings was agreed in 2023 as part of the EU’s climate framework. The goal is to cut emissions in these sectors by 42% by 2030 compared with 2005 levels. Originally planned to begin in 2027, the rollout was pushed back a year after concerns emerged about its social impact.
Under the revised rules, 600 million carbon allowances already set aside in the reserve will remain available as a buffer. Currently, 20 million allowances are released when prices rise above €45 per tonne of CO₂ (in 2020 price terms). The updated framework doubles the potential intervention: an additional 20 million allowances can be released at a time, and releases can happen twice a year. That means up to 80 million allowances could be injected annually to cool the market if prices surge.
EU officials say the changes send a signal that the bloc is committed to keeping the carbon market stable and predictable while staying on track with its climate targets.
Balancing Climate Ambition and Social Pressure
The decision comes alongside a recent €3 billion advance from the European Investment Bank aimed at helping cushion rising energy bills. Lawmakers in the European Parliament have been pressing for stronger protections to ensure vulnerable households are not left behind during the green transition.
Supporters of the strengthened safeguard argue that predictable carbon pricing is essential for guiding long-term investment into cleaner technologies. Critics, however, worry that even with buffers in place, the added costs could weigh heavily on families and small businesses.
The Council’s agreed position will now move to the European Parliament for scrutiny. Lawmakers must approve the final rules before the new ETS2 system formally begins in 2028, marking another pivotal step in the EU’s effort to cut emissions while trying to manage the economic fallout of the transition.
