EU to Add Heating and Transport to Emissions Trading System
The EU Council of Ministers has approved amendments that will expand the Emissions Trading System (ETS) to include the heating and transport sectors starting in 2028. The move is part of the European Green Deal and is expected to increase pressure on the Dutch housing and construction sectors to accelerate energy efficiency retrofits and adopt low-embodied-carbon materials.
- The new, separate emissions trading system, known as ETS2, will regulate fuel suppliers for the buildings and road transport sectors, rather than individual consumers. This "upstream" approach places the compliance obligation on entities like fuel distributors. The system is designed to incentivize a shift to cleaner energy by making fossil fuels more expensive. - To mitigate the financial impact on vulnerable citizens, the EU has established a Social Climate Fund, which will become operational in 2026, a year before the ETS2 fully launches. This fund, expected to total €86.7 billion between 2026 and 2032, will help member states finance measures to support lower-income households, such as investments in energy-efficient renovations and cleaner transportation options. - For the Netherlands, the ETS2 is projected to increase annual household energy and transportation costs by between €319 and €489. A study by CE Delft estimates that the higher costs for natural gas, petrol, and diesel could push an additional 24,000 Dutch households into energy poverty by 2030. - Monitoring and reporting of emissions under the new system began on January 1, 2025, with fuel suppliers required to hold a greenhouse gas emissions permit and have approved monitoring plans. The first surrender of allowances for the emissions reported in 2027 is scheduled for May 31, 2028. - The Netherlands has opted to extend the ETS2 to include fuels used in additional sectors beyond the EU mandate, such as inland shipping, rail transport, and agriculture. However, the Dutch government is still deciding whether to include the greenhouse horticulture sector, fearing that adding it to the ETS2 on top of existing decarbonization policies could lead to over-stimulation. - Carbon price forecasts for the ETS2 vary, but some analysts predict prices could start around €80 per tonne in 2027 and potentially rise to €149 per tonne by 2030. To prevent excessive price spikes, the system includes a Market Stability Reserve that can release additional allowances if the price exceeds a certain threshold, which is initially set at €45 per tonne (adjusted for inflation from 2020 prices). - The ETS2 is a key component of the EU's "Fit for 55" package, which aims to reduce the bloc's net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. Once the new system is in place, approximately 75% of total EU emissions will be covered by a carbon price.
