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EU ETS2 for Buildings, Road Transport in 2027: why we need auctions to start early
(Energy Post, 23 Apr 2024) The EU has established a second emissions trading system (ETS) to put a carbon price on buildings and road transport, the “EU ETS2”. The ETS2 starts in 2027, but monitoring and reporting of ETS2 emissions will begin in 2025.
One issue is that an ETS means prices for long-term fuel supply contracts will be affected, so a crucial question for firms is how to hedge their potential exposure, says Ingo Ramming at BBVA writing for the Florence School of Regulation. He looks at all the moving parts, the differences between this and the first EU ETS, and lessons learned from the first EU ETS. In conclusion, Ramming recommends commencing auctions of ETS2 allowances well before 2027. It would generate confidence in the system, create price discovery, and enable companies to hedge long-term supply agreements. It would also provide additional financing for the Social Climate Fund in 2025 and 2026.
In February 2024, the European Commission presented its assessment of a 2040 climate target, ensuring a path for the EU to reach its net zero target by 2050. The target is challenging, and to achieve it, all sectors need to contribute.
ETS2: for buildings and road transport
To address this, the EU established a second emissions trading system for buildings and road transport, the “EU ETS 2.” By putting a price on carbon, the EU aims to change behaviourand incentivise innovation in road transport and buildings, reducing GHG emissions. Besides, it raises money through the Social Climate Fund for governments to support investments and soften the social costs for the more vulnerable parts of society.
Energy Post, 23 Apr 2024: EU ETS2 for Buildings, Road Transport in 2027: why we need auctions to start early
