The European Union is taking big steps towards a climate neutral Europe. An important part of this is ETS-2: the Emissions Trading System 2. This new emissions trading system will enter into force in 2027 and focuses on CO₂ emissions from buildings, road transport and smaller industries. Although you as a customer do not have to buy any emission allowances, ETS-2 does affect your energy bill. In this article, we explain what ETS-2 is, when it will take effect, why the cost of gas and other fossil fuels is rising, and what steps you can take now to avoid additional costs.
What is ETS 2?
ETS-2 is a new European carbon market that will coexist with the existing ETS 1. Whereas ETS 1 focuses on large industries, power generation and aviation, ETS 2 will regulate emissions from fuels supplied to the built environment, road transport and smaller industries. It works on the cap-and-trade principle:
- The EU sets a ceiling (cap) on total CO₂ emissions from the sectors concerned.
- One allowance is auctioned for each ton of CO₂; the total number of allowances decreases each year, making emissions progressively more expensive.
- All allowances in ETS-2 are auctioned; therefore, no free allowances are issued.
How does the ETS-2 system work?
The ETS-2 works according to an upstream system: energy suppliers, including Scholt Energy, are responsible for monitoring the CO₂ emissions caused by their customers' gas consumption as well as purchasing the corresponding emission rights. In concrete terms, this means that we monitor our customers' gas consumption and purchase the necessary rights for this on the market. The cost of these emission rights is then passed on to the end user via the gas price.
Higher energy costs
Suppliers will have to buy emission rights for your gas consumption starting in 2028. They will pass on these costs through the gas price. Your variable costs per m³ of gas will increase as a result, but it is still unclear by how much.
No direct obligation for you
Within ETS-2, you as an end user have no obligation to monitor emissions yourself, provide reports or purchase emission rights. All legal responsibilities, from monitoring to purchasing emission rights, lie with the energy supplier.
Incentive to become more sustainable
As gas becomes more expensive, it pays to reduce your energy consumption and electrify. We recommend electrification through heat pumps, solar panels and insulation. These measures reduce gas consumption and lower your carbon emissions.
How much will ETS-2 cost?
Because ETS-2 works with a marketplace where allowances are auctioned (supply and demand), the exact CO₂ price is not yet fixed. Estimates do give an idea of the additional costs:
- Estimates assume a gas price increase of about € 0.08-0.11 per m³ at a CO₂ price of € 45-60 per ton. Another estimate quotes € 0.17 per m³ of gas.
- The actual costs depend on the CO₂ price at the time of auction, the number of available rights and any EU price frameworks. The European Commission is introducing a price cap of €45 per ton (price level 2020) until the end of 2029 to prevent extreme increases.
See in the chart the price development of CO2 allowances over the past three years
What can you do now?
- Take stock of your energy consumption. Analyze how much gas you consume. This will give insight into the potential extra costs due to ETS-2.
- Make your operations more sustainable. Consider switching to electric installations (such as e boilers), heat pumps or solar panels, and improve building insulation. The less gas you use, the less CO₂ cost you pay.
ETS-2 is an important step in European climate policy. The system will lead to a CO₂ price for fossil fuels in the built environment and road transport from 2028, with the goal of reducing emissions by 55% by 2030. Although you as a customer will not have to buy any emission rights, your energy bill will change. By investing in sustainability now, you can reduce those costs and contribute to a climate-neutral Europe.