EU ETS2 Launching in 2028: Key Steps for Emissions Trading in Buildings & Transport

The European Union Emissions Trading System 2 (EU ETS2) expands carbon pricing to buildings and road transport sectors, with full certificate surrender obligations beginning in 2028. In November 2024, EU environment ministers agreed to delay implementation by one year, utilising the energy price safeguard clause to address concerns about high energy prices affecting vulnerable households.

This new emissions trading system operates "upstream," placing obligations on fuel suppliers and regulated entities placing fossil fuels on the market rather than end consumers. The extended transition period (2024-2027) provides comprehensive preparation time whilst maintaining climate neutrality targets under the European Climate Law.

Key Implementation Milestones:

• 31 August 2024: Monitoring plan submission

• 30 April 2025: First emissions report (2024 data)

• 2024-2027: Extended parallel operation with national systems

• 2026: Germany introduces auction-based national CO₂ levy

• July 2026: EU Commission formal decision on energy price clause

• 2028: Full certificate surrender obligation begins

The Social Climate Fund provides approximately €65 billion through 2032 to support vulnerable households facing higher energy prices, distinguishing EU ETS 2 from simple carbon tax approaches. For regulated entities—particularly natural gas suppliers, heating oil distributors, and fuel suppliers—the extended timeline reduces implementation pressure whilst creating strategic positioning opportunities.

Strategic Relevance & Market Development

Expanding Europe's Carbon Tax Architecture

The existing EU ETS, covering power generation and heavy industry since 2005, has proven that emissions trading systems achieve emission reductions efficiently whilst providing market liquidity. EU ETS 2 extends this mechanism to additional sectors accounting for approximately 40% of European emissions—primarily buildings and road transport sectors that have historically proven challenging to regulate through traditional approaches.

The European Commission proposed this expansion under the "Fit for 55" package, targeting 55% net emission reductions by 2030 versus 1990 levels. By creating a separate emissions trading system, the EU avoids destabilising the existing EU ETS whilst establishing targeted carbon pricing for sectors with distinct compliance challenges and emissions profiles.

Unlike carbon tax approaches that establish fixed prices through legislative processes and excise duties, emissions trading creates market-determined prices reflecting actual emission reduction costs across regulated entities. This market mechanism provides cost-effective pathways to decarbonisation whilst maintaining economic flexibility. Member States retain flexibility in supporting vulnerable households through the Social Climate Fund or strategic adjustments to existing excise duties on natural gas and heating oil.

Market Dynamics and Price Projections

EU ETS 2 will operate with price stability mechanisms preventing excessive price increases that disproportionately affect vulnerable households. The Market Stability Reserve helps mitigate insufficient or excessive supply of emission allowances, providing regulated entities with greater price predictability.

The Social Climate Fund specifically supports vulnerable households, providing Member States with resources for social measures and energy efficiency investments. Carbon prices in EU ETS 2 are expected to reach €45-80 per tonne CO₂ by 2030, creating substantial compliance costs but also incentivising investments in energy efficiency and renewable energy. Understanding these dynamics becomes crucial for organisations developing climate risk management strategies and preparing for comprehensive sustainability reporting under CSRD.

Strategic Differentiation Through Early Action

The extended transition period until 2028 represents a critical window to establish robust carbon management processes delivering both compliance and competitive benefits. Early implementation of monitoring systems reduces administrative burden later, whilst proactive emission reduction measures lower future certificate purchase requirements.

Demonstrating climate leadership increasingly influences stakeholder perceptions—from institutional investors applying ESG criteria to corporate customers requiring verified emissions data from suppliers. Regulated entities integrating EU ETS 2 into comprehensive climate risk assessment frameworks position themselves advantageously for stakeholder engagement and future regulatory developments.

The November 2024 delay decision reflects EU policymakers' responsiveness to energy market conditions, demonstrating flexibility within the broader climate neutrality framework. Early movers can spread investments and embed carbon management systematically across four years rather than three, building capabilities incrementally whilst operational pressures remain manageable.

Companies that wait until 2028 to engage seriously with EU ETS 2 face compressed timelines, higher implementation costs, and elevated compliance risks. Conversely, organisations using the extended preparation period strategically gain operational efficiency advantages, stronger stakeholder relationships, and enhanced capacity to capitalise on low-carbon business opportunities created by rising carbon prices.

Regulatory Landscape & Compliance Requirements

Legal Framework and Scope of the EU emissions trading system

EU ETS 2 operates within a comprehensive regulatory framework established through amendments to the EU Emissions Trading Directive (2003/87/EC). The European Commission sets overarching policy, whilst Member States implement national regulations. The German Environment Agency (DEHSt) administers emissions trading in Germany, including both national system (nEHS) and EU ETS 2 obligations.

The upstream approach targets fuel suppliers rather than end users, reducing the number of regulated entities to approximately 40,000-50,000 across the European Union. Specifically covered regulated entities include:

• Natural gas suppliers and distributors

• Heating oil and gas oil suppliers

• Petrol and diesel fuel distributors

• LPG and other fossil fuel suppliers

• Small industry facilities below 10MW thermal input

• Coal suppliers outside existing EU ETS coverage

This approach facilitates administrative efficiency whilst carbon costs pass through supply chains via pricing mechanisms similar to excise duties. Regulated entities operating across multiple Member States must coordinate compliance whilst managing Scope 3 emissions accounting.

Monitoring and Reporting Obligations

The transition to full certificate surrender in 2028 begins with mandatory emissions monitoring from 2024. Regulated entities must submit monitoring plans detailing calculation methodologies, emission factors, data collection systems, and quality assurance procedures. Annual emissions reports beginning with 2024 (due 30 April 2025) must specify total greenhouse gas emissions, breakdowns by fuel type, and documentation preventing double counting.

Relationship to National Carbon Pricing Systems

Between 2024-2027, companies face parallel obligations with national systems. Germany plans to use existing nEHS infrastructure for EU ETS 2 submissions, reducing duplication whilst enabling efficient multi-jurisdictional compliance for regulated entities operating across Member States. This pragmatic approach demonstrates how harmonisation proceeds incrementally rather than through disruptive replacement of functional national systems.

The German BEHG establishes fixed carbon prices reaching €55 per tonne in 2025, with a price corridor of €55-65 in 2026. Following the ETS2 delay, Germany will introduce auction-based CO₂ pricing in 2026, transitioning to market-determined allowance costs before EU ETS 2 implementation in 2028. This auction system provides practical learning opportunities for regulated entities about price formation mechanisms, bidding strategies, and certificate market dynamics before EU-wide implementation.

Regulated entities in Germany experience three phases: fixed pricing (through 2025), national auction system (2026-2027), and EU-wide emissions trading (from 2028). This graduated approach reduces implementation shocks whilst providing practical experience with market-based mechanisms. Different Member States will phase out carbon tax systems at varying speeds, creating temporary complexity for regulated entities operating across multiple jurisdictions.

For organisations developing comprehensive ESG strategies, coordinating EU ETS 2 compliance with evolving national obligations strengthens sustainability governance whilst minimising administrative burden through intelligent process integration.

Business Case & Implementation Strategies

Direct Compliance Costs and Pass-Through Dynamics

Certificate purchase obligations beginning in 2028 represent material P&L impacts. A fuel supplier placing 100,000 tonnes of diesel on the market annually would face certificate costs of approximately €7 million at a carbon price of €70 per tonne CO₂.

Most regulated entities can pass carbon costs to customers through price adjustments, similar to how excise duties flow through fuel pricing. The competitive impact depends on market structure and customer price sensitivity. In relatively homogeneous fuel markets, all suppliers face similar carbon costs, enabling industry-wide price adjustments comparable to excise duty changes. Strategic considerations focus on timing, communication, and potential differentiation through lower-carbon alternatives.

Administrative costs typically range €20,000-50,000 for initial setup and €5,000-15,000 annually thereafter. However, regulated entities leveraging existing emissions monitoring infrastructure from BEHG compliance or corporate sustainability reporting can significantly reduce these figures. The extended transition period allows regulated entities to spread implementation costs across four years, reducing annual budget pressure whilst enabling thorough capability building.

For regulated entities already subject to excise duties on fuels, integrating EU ETS 2 monitoring with existing tax compliance processes can generate efficiencies. Fuel volume data collected for excise duty purposes provides foundation for emissions calculations, reducing incremental data collection requirements.

Implementation Phases for Fuel Suppliers

Phase 1 (2024-2025): Foundation Building

• Establish cross-functional project teams

• Conduct gap analysis of current data systems

• Submit monitoring plan

• Implement pilot monitoring

• Integrate EU ETS 2 into broader carbon accounting frameworks

Phase 2 (2025-2027): Process Integration

• Integrate emissions calculations into transaction systems

• Train customer-facing staff

• Develop pricing models

• Monitor German auction system (from 2026)

• Begin certificate procurement scenario planning

Phase 3 (2028+): Operational Excellence

• Execute certificate procurement strategy

• Monitor carbon price developments

• Leverage emissions data for strategic decisions

Implications for Other Sectors

Building operators and transport companies face indirect impacts through higher natural gas and fuel prices. Energy efficiency investments become more economically attractive, whilst transport companies must integrate these cost pressures into broader climate risk and business strategy frameworks.

For venture capital and impact investors, EU ETS 2 creates opportunities whilst affecting portfolio company economics. Understanding these dynamics becomes crucial for funds developing climate tech investment strategies and evaluating ESG performance across portfolios.

ESG Integration & Impact Measurement

Connecting EU ETS2 to CSRD Reporting

The Corporate Sustainability Reporting Directive (CSRD) requires large companies to disclose comprehensive ESG information, including Scope 1, 2, and 3 greenhouse gas emissions under ESRS E1 Climate Change. EU ETS 2 monitoring data directly supports CSRD compliance, creating synergies reducing total reporting burden for regulated entities subject to both frameworks.

For companies with direct emissions from buildings or transport not covered by existing EU ETS, EU ETS 2 monitoring provides verified Scope 1 emissions data meeting CSRD requirements. Rather than maintaining parallel systems, regulated entities should design monitoring plans simultaneously meeting EU ETS 2 and CSRD requirements, reducing administrative burden and ensuring data consistency across regulatory frameworks.

Fuel suppliers' EU ETS 2 obligations represent downstream Scope 3 emissions from product use—often the most significant portion of many regulated entities' total carbon footprints. Integrating this data into sustainability reporting demonstrates comprehensive emissions accounting whilst providing baseline data for reduction target setting under frameworks like the Science Based Targets initiative.

The Science Based Targets initiative (SBTi) requires companies to set emission reduction targets aligned with limiting global warming to 1.5°C. EU ETS 2 monitoring provides robust emissions inventory data supporting SBTi target development, whilst the carbon price creates economic incentives reinforcing voluntary reduction commitments. Regulated entities can leverage verified EU ETS 2 data to strengthen SBTi submissions, demonstrating transparent baseline data backed by regulatory monitoring requirements.

Strategic organisations integrate EU ETS 2 compliance into broader climate strategy frameworks rather than treating it as isolated regulatory requirement. This integrated approach reduces total cost of compliance whilst strengthening overall ESG performance, positioning regulated entities advantageously for stakeholder engagement across Member States. Companies can explore comprehensive approaches to implementing ESG criteria that leverage EU ETS 2 data for broader sustainability objectives.

Performance Metrics

Sophisticated organisations track EU ETS 2 performance through comprehensive metrics:

Operational Metrics:

• Emissions intensity (tonnes CO₂ per revenue unit)

• Carbon cost as percentage of EBITDA

• Year-over-year emission reduction percentages

Financial Metrics:

• Certificate procurement costs versus budget

• Carbon price hedging effectiveness

• Customer carbon cost pass-through rate

Strategic Metrics:

• Employee engagement with carbon management

• Integration with sustainability reporting frameworks

• Regulatory compliance rate

Future Outlook & Strategic Recommendations

Regulatory Evolution and Policy Dynamics

The November 2024 delay decision demonstrates how the regulatory framework adapts to energy market realities whilst maintaining climate policy direction. The EU Commission will make a formal decision by July 2026 on implementing the energy price safeguard clause, with final confirmation requiring European Parliament approval expected by end of 2025. Regulated entities should monitor these procedural steps, though political momentum strongly supports the 2028 timeline.

The Social Climate Fund implementation will significantly influence EU ETS 2's political sustainability. Member States' experiences deploying approximately €65 billion for vulnerable household support will inform policy adjustments. Countries successfully cushioning impacts through energy efficiency retrofits, public transport improvements, or targeted income support may advocate maintaining current frameworks, whilst others might seek modifications reflecting implementation challenges.

Regulated entities should monitor public perception of carbon pricing across Member States. Political backlash—particularly if vulnerable households face inadequately offset cost increases—could trigger policy adjustments affecting compliance obligations. Conversely, successful Social Climate Fund implementation may facilitate carbon price increases supporting more ambitious emission reductions, potentially accelerating the EU's path toward climate neutrality targets.

The Market Stability Reserve and price stability mechanisms will evolve based on initial market experiences. If carbon prices consistently hit upper bounds designed to protect vulnerable households, pressure may build to relax constraints. Prices persistently near lower limits could trigger mechanism tightening. Understanding these dynamics helps regulated entities develop robust carbon price scenarios for strategic planning across multiple possible futures.

Strategic Recommendations

1. Leverage the Extended Timeline: The additional year until 2028 provides opportunity to strengthen preparation beyond minimum compliance. Companies can pilot sophisticated monitoring approaches, develop deeper staff expertise, and establish stronger stakeholder communication frameworks. The German auction system launching in 2026 provides early insights into market-based carbon pricing dynamics.

2. Integrate Carbon Pricing into Strategy: Companies should integrate carbon pricing into investment decisions, product development, and customer relationships rather than treating EU ETS 2 as isolated compliance requirement.

3. Invest in Data Infrastructure: High-quality emissions data supports multiple objectives—EU ETS 2 compliance, CSRD reporting, Science Based Targets, and strategic decision-making. Investments in monitoring systems generate returns across these applications.

4. Develop Low-Carbon Alternatives: For fuel suppliers, the carbon price creates demand for lower-emission alternatives—biogas, bio-LNG, renewable electricity. Strategic investments in cleaner fuel options position companies for energy transition.

5. Build Climate Governance: Effective carbon management requires appropriate governance structures—board oversight, executive accountability, clear roles, and integration into risk management frameworks.

Frequently Asked Questions

EU ETS 2 Fundamentals

What exactly is EU ETS 2? EU ETS 2 is the new emissions trading system for buildings, road transport, and additional sectors. It operates "upstream," meaning fuel suppliers must monitor emissions and surrender emission allowances. Unlike carbon tax systems establishing fixed prices, EU ETS 2 creates market-determined allowance prices reflecting actual emission reduction costs.

Why was the start date moved to 2028? In November 2024, EU environment ministers agreed to delay implementation from 2027 to 2028, utilising the energy price safeguard clause. This reflects persistent high energy prices and concerns about vulnerable households. The EU Commission will make a formal decision by July 2026, with final European Parliament approval expected by end of 2025.

Is participation mandatory? Yes, for entities meeting coverage thresholds. Any company placing covered fuels on the market above de minimis thresholds must comply with monitoring and reporting requirements beginning in 2024, with certificate surrender obligations from 2028.

How does EU ETS 2 affect energy prices? EU ETS 2 will increase prices for natural gas, heating oil, and transport fuels by 5-15% by 2030. However, the Social Climate Fund provides resources for Member States to support vulnerable households through direct subsidies, energy efficiency improvements, or adjustments to existing excise duties.

Compliance and Costs

What is the monitoring plan? The monitoring plan documents how your organisation will track emissions from covered fuels. It must specify calculation methodologies, emission factors, data sources, and quality assurance procedures. The first monitoring plan was due by 31 August 2024.

How much will compliance cost? Certificate costs depend on fuel volumes and carbon prices—potentially millions of euros annually for large fuel suppliers. Administrative costs typically range €20,000-50,000 for initial setup and €5,000-15,000 annually. The extended transition period until 2028 allows spreading these costs across four years.

Can companies pass carbon costs to customers? Generally yes, similar to how excise duties flow through pricing. Most fuel suppliers can adjust customer prices to reflect carbon costs.

Integration with Other Requirements

How does EU ETS 2 relate to CSRD sustainability reporting? EU ETS 2 monitoring provides high-quality Scope 1 emissions data directly supporting CSRD reporting requirements. Companies subject to both should integrate compliance processes to avoid duplication and ensure data consistency.

What does the November 2024 delay mean for regulated entities? The one-year delay provides extended preparation time—four years instead of three—to establish monitoring systems and develop carbon management strategies. For Germany, it enables introduction of auction-based national CO₂ pricing in 2026-2027, providing practical experience before EU-wide implementation. The extended timeline reduces implementation pressure whilst maintaining carbon pricing certainty for long-term investment planning.

Sources

European Commission. (2024). EU Emissions Trading System (EU ETS). Retrieved from https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/about-eu-ets_en

International Carbon Action Partnership. (2024). EU Emissions Trading System – Buildings and Road Transport (EU ETS 2). Retrieved from https://icapcarbonaction.com/en/ets/eu-emissions-trading-system-buildings-and-road-transport-eu-ets-2

Deutsche Emissionsstelle (DEHSt). (2024). EU ETS 2: Implementation guidance for regulated entities. Berlin: German Environment Agency.

Argus Media. (2024, November 5). EU Minister einigen sich auf verzögerten ETS-2-Start. Retrieved from https://www.argusmedia.com/de/news-and-insights/latest-market-news/2750305-eu-minister-einigen-sich-auf-verzogerten-ets-2-start

European Parliament and Council of the European Union. (2023). Directive (EU) 2023/959 amending Directive 2003/87/EC. Official Journal of the European Union.

Commission Implementing Regulation (EU) 2018/2066 on the monitoring and reporting of greenhouse gas emissions.

This article provides strategic guidance for organisations navigating EU ETS 2 compliance requirements. For company-specific implementation strategies, explore our sustainability consulting services tailored to your operational context.