EU ETS 2 allowance price for 2027 approaches EUR 80

The price of an emissions allowance in the EU ETS 2 system, which is also set to cover the buildings and transport sectors, is approaching EUR 80/t CO₂ for the DEC27 contract. For 2028 and the DEC28 product, it is already above that threshold. The allowance price is even higher than in the first EU ETS system. The Czech Republic is now seeking to push through changes to the EU ETS2 system that would mitigate the impact on end consumers.

The introduction of EU ETS 2 was approved in December 2022 during the Czech presidency of the Council of the EU and was at the time regarded by Czech representatives as a major success of the Czech presidency.

"From the outset, we wanted to finalise a balanced agreement on changes to the emissions trading system and the Social Climate Fund during our presidency. The fact that we have succeeded is a huge achievement. It will allow us to meet climate targets in key economic sectors while ensuring that the most vulnerable households and small businesses are effectively supported in the transition to the new climate policy," said then Environment Minister Marian Jurečka (KDU-ČSL) on reaching the agreement in December 2022.

Reversal in the Czech Republic's position

A fundamental reversal in the country's position on the second system came last year, as the need to incorporate it into national legislation and begin the system's testing phase drew closer. This year, the monitoring phase is already under way, during which affected entities report their CO₂ emissions.

The Czech Republic has now sent the European Commission its requests for changes to EU ETS2 trading, as reported by the Ministry of the Environment (MŽP) here. The change is said to be supported by 18 EU Member States. The requests are intended to ensure a stable allowance price and prevent negative impacts on households and businesses.

The main, but not the only, requests are: predictability of the allowance price and the introduction of a market stability reserve (MSR) mechanism.

Predicting the emissions allowance price is extremely difficult given how the system is designed. One can look at the existing EU ETS system and the experience gained from it. Entities that are not required to surrender emissions allowances also have access to the market, meaning the system is affected by speculative trading that influences allowance prices.

A higher emissions allowance price supports decarbonisation, which is the EU's main objective. Economically, however, it places a burden on consumers.

Another request is the introduction of a trigger mechanism for the market stability reserve (MSR) to limit price volatility and ensure that the “price remains at the EUR 45 threshold”. The request sounds simple, but it will be extremely difficult to design legislatively. How would it work? Would it change from year to year? In this case, the details matter – they then shape the final price.

Impact on consumers

However, the negative economic impact on households or businesses cannot inherently be avoided if the EU ETS2 system, or another form of carbon tax, is introduced. This is particularly true given the current energy-source base. More on district heating, for example, here.

Fakta o klimatu has calculated the impact of the allowance price on fossil fuel prices – more here. Unfortunately, however, the calculation ends at 70EUR/t CO₂.