EU ETS 2 Explained: How Emissions Trading Expands to Buildings & Transport

ETS2 is a separate emissions trading system that puts a carbon price on the fuels burned in buildings, in road transport and in small industry. It does not bill the building owner or the fleet operator. The obligation sits upstream with the companies that place the fuel on the market, and the cost arrives downstream in the heating bill and at the pump.

Under Directive (EU) 2023/959 the system was scheduled for 2027 and has been postponed to 2028 by the December 2025 agreement on the EU 2040 climate target. This article reflects that, as of September 2026.

What ETS2 covers, who is the regulated entity and when it starts

ETS2 applies to fuel released for consumption and then burned in buildings, in road transport and in installations below the ETS1 thresholds. The covered greenhouse gas is carbon dioxide from that combustion, so scope follows fuel and end use, not company size, and it has nothing to do with CO2 transport and storage networks, which are regulated separately.

The regulated entity is the fuel supplier. Whoever releases petrol, diesel, heating oil, LPG or natural gas for consumption needs a greenhouse gas emissions permit from the competent authority of its member state, registers before the start, monitors the volumes it places on the market and surrenders allowances against them. A haulier with 200 trucks is not a regulated entity and files nothing. It pays inside the diesel price, which is why the cost is easy to miss.

Start date, as of September 2026. The directive originally fixed 2027. In December 2025 Parliament and Council agreed, as part of the deal on the EU 2040 climate target, to postpone the start by one year: auctioning begins in 2028, the surrender obligation covers 2028 emissions, and the first surrender falls due in 2029. The directive still carries a safeguard that can shift the system by a further year if energy prices are exceptionally high in a defined reference period. Plan on 2028 and treat any further delay as the upside. A postponement costs nothing if the data is already in place; a missed start costs a surrender year.

EU ETS 2 timeline: key dates to 2030

Each date below shifts by a year, in the same order, if the postponement takes effect.

From the first reporting year the annual compliance cycle repeats without variation: approved monitoring plan, volumes tracked through the year, verified emissions report in the spring, allowances surrendered by the surrender deadline. Missing that deadline is the expensive failure mode, because the penalty applies on top of the allowances that still have to be handed over.

EU ETS 2 vs ETS 1: key differences

The price stability mechanism is the row that matters most for planning: it is the only part of the design that limits how fast the cost can climb early on, and it works by adding supply, not by capping the price. The practical consequence of the rest of the table is that ETS2 lands in energy contracts and logistics budgets, not in a compliance ledger, which is a different reflex from any other position in the European carbon market.

What the carbon cost does to prices, budgets and contracts

The pass-through is arithmetic, so size it before the first invoice does. At an illustrative allowance price of 75 euros per tonne of CO2, using standard emission factors:

• Diesel, at roughly 2.67 kg CO2 per litre, gains about 20 cents per litre.
• Natural gas, at roughly 0.20 kg CO2 per kWh, gains about 1.5 cents per kWh.

A company burning 400,000 litres of diesel and 2 GWh of gas a year is looking at roughly 80,000 euros on fuel and 30,000 euros on heat, around 110,000 euros a year before tax and before any national levy.

Contracts. Three things decide who carries that amount: whether the supply contract carries a change in law or pass-through clause, whether the price is fixed or indexed across the term spanning the start date, and whether logistics and facility contracts permit surcharges. Fixed price contracts running past the start date are the ones to pull first.

National carbon pricing. Fuels already priced under a national scheme, the German BEHG being the obvious case, are not meant to be charged twice. Member states have to retire or adapt their scheme as ETS2 takes over, and the sequencing differs by country.

Before the first surrender year, have ready:

• A named owner for fuel volume data, per site and per fuel, reporting monthly.
• The pass-through clause of every energy and logistics contract, read and summarised.
• A budget line for the carbon component, separate from the energy price.
• A hand-off from that budget line into the sustainability report, so the number is collected once.

Using the ETS2 cost in CSRD reporting and in internal steering

The fuel volumes that determine the ETS2 cost are the same numbers that carry the Scope 1 inventory, and for a fuel supplier the same ones that carry Scope 3 emissions from product use. Under ESRS E1 two disclosures pick the cost up: the transition plan and internal carbon pricing.

This is where I would break the usual sequence. Most companies meet ETS2 first as a reporting obligation and put the resulting number in the report. That produces a conformant disclosure and no decision. The figure only earns its collection cost if it reaches the places where money is committed: the fleet replacement case, the heating system decision, the site budget. A shadow price of 75 euros per tonne inside an investment appraisal changes the ranking of a heat pump against a gas boiler years before the surrender obligation does. One that lives only in chapter E1 changes nothing.

The practical version is unglamorous: put the ETS2 cost into the same budget template as energy and let the report take its figure from there, not the other way round. Companies already running a science based target or a power purchase agreement have the machinery for it.

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