Member States Rally Around Price Safeguards
European Union governments have agreed to strengthen 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 place a carbon price on fuels used for heating homes and powering cars and vans. Once fully operational in 2028, households and businesses relying on fossil fuels are expected to feel the impact through higher energy and transport costs. That prospect has already triggered political tension across the bloc.
To avoid sudden price surges, EU countries have decided to extend and reinforce the market stability mechanism beyond 2030. The move is designed to ensure that when the new system kicks in, carbon prices remain predictable and do not spiral out of control.
Still, divisions remain. Slovakia and the Czech Republic have pushed for delaying the rollout until at least 2030, arguing that the social consequences could be too severe. On the other hand, Sweden, Denmark, Finland, the Netherlands and Luxembourg have warned that postponing or weakening the system would undermine the EU’s climate ambitions and create uncertainty for businesses planning long-term investments.
How the Stability Mechanism Will Work
At the heart of the decision is an adjustment to the EU’s Market Stability Reserve — the tool used to manage supply and demand in the carbon market. Originally created to deal with surplus emission allowances, it now plays a central role in cushioning the system from shocks.
Under the revised rules, the 600 million allowances already set aside in the reserve — roughly equivalent to ten years of emission-reduction needs — will continue to act as a buffer. If prices climb too high, more allowances can be released into the market to cool things down.
Currently, 20 million allowances are triggered when the carbon price rises above €45 per tonne of CO₂ (based on 2020 prices). The new agreement doubles the size of each release and allows it to happen twice a year. In practical terms, that means up to 80 million allowances could be injected annually to prevent dramatic price jumps.
The extension of the carbon market to transport and buildings was adopted in 2023 as part of the EU’s broader climate legislation. The goal is ambitious: cut emissions in these sectors by 42% by 2030 compared with 2005 levels. The launch was originally set for 2027 but was pushed back amid concerns about the burden on citizens.
Balancing Climate Goals and Social Pressures
EU officials argue that reinforcing the safety valve sends a clear signal to markets and citizens alike: the transition to cleaner energy will be firm, but not chaotic.
The decision also comes alongside financial efforts to ease the strain on consumers. The European Investment Bank recently brought forward €3 billion to help address rising energy costs, reflecting pressure from lawmakers who want to shield vulnerable households during the transition.
Now, the Council’s position will head to the European Parliament for review. Lawmakers must sign off on the final rules before ETS2 begins operating in 2028.
As the EU pushes forward with its climate targets, the challenge will be striking the right balance — keeping the carbon market strong enough to drive emissions down, while ensuring prices remain stable enough to maintain public support.
