European Commission sets ETS 2 emissions cap for 2027: New rules for road transport and buildings

The European Commission has adopted a decision setting the number of allowances to be issued under the EU ETS2 system in 2027. The system will apply to emissions from road transport, buildings and small industry.

The cap, or maximum amount of emissions that can be produced under the system, will be 1 036 288 784 allowances in 2027, as the European Commission reported on its website. The cap was calculated on the basis of average CO2 emissions from fuel combustion in the sectors covered by ETS2, namely from 2016 to 2018. This average will then be reduced through to 2027.

For the 2025-2027 period, the cap will be reduced by an annual linear reduction factor of 5.1%, in line with the EU ETS Directive. The ETS 2 cap for 2028 will be set later, based on the average CO2 emissions reported by regulated entities under ETS 2 for 2024 to 2026.

Monitoring to begin in 2025

The ETS 2 system will be fully operational from 2027, with monitoring and reporting starting in 2025. In that year, regulated entities must also have an approved emissions permit and monitoring plan.

Entities will be required to submit an emissions report for the previous year by 30 April each year, and from 2026 these figures must be verified by an accredited verifier. From 2028, companies will then have to surrender allowances each year based on verified emissions. EU member states are responsible for enforcing these obligations.

The system was introduced by the European Commission in 2023 as a second greenhouse gas emissions allowance trading system. Its rules are set out in the existing EU ETS Directive. The system expands the original EU ETS and focuses on CO2 emissions from fuel combustion in buildings, road transport and small industrial sectors not covered by ETS 1.

During 2027, a 30% higher volume of allowances than needed will be auctioned to ensure market liquidity. If allowance prices exceed EUR 45 during the system’s first three years of operation, additional allowances may be released from the ETS 2 Market Stability Reserve to prevent excessive price increases. Allowances may also be released from this reserve later if prices rise too quickly.