By John Ainger and Ewa Krukowska
The European Commission is preparing to introduce tighter price-control mechanisms for ETS2, the new carbon market covering heating and transport fuels set to launch in 2027. The move follows growing concern among member states about potential price spikes that could undermine public support for climate policy ahead of the 2040 emissions-reduction debate. According to a letter by Climate Commissioner Wopke Hoekstra, seen by Bloomberg, the Commission plans to double the volume of reserve permits available for release when prices exceed €45 per ton and to allow the mechanism to be triggered twice within a 12-month period. Additional proposals include early auctioning of permits from 2026 and the creation of a Frontloading Facility by the European Investment Bank to finance clean-technology deployment in ETS2 sectors.
Without such measures, analysts at BloombergNEF estimate ETS2 prices could reach €149 per ton by 2029 which is more than 80% higher than current EU ETS levels for power and industry. While the system is central to the EU’s 2030 and mid-century climate targets, the risk of excessive volatility has sparked fears of a political backlash similar to that seen during the French “gilets jaunes” protests. The new design aims to make ETS2 more predictable and socially acceptable, ensuring that revenues continue to support vulnerable households while maintaining the economic incentives to decarbonize.
FACS Perspective
From FACS’ viewpoint, these developments highlight the delicate balance between market efficiency and political durability in carbon pricing. A more flexible reserve mechanism can help smooth early-phase volatility and protect public trust, but excessive intervention risks distorting the very price signals that drive low-carbon investment. For companies operating in energy, transport, or compliance markets, ETS2 stability will shape hedging strategies, allowance procurement, and downstream cost pass-throughs over the next decade. The Commission’s willingness to intervene early shows a growing recognition that Europe’s climate ambition must rest on predictable carbon markets capable of sustaining both investor confidence and citizen acceptance.
This article is based on reporting by Bloomberg. All rights, including copyright, belong to Bloomberg and the original authors.