EU ETS2 CO₂ trading system from 2027: fuel will get pricier in the near future

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The price of fuel will rise. The CO₂ trading system EU ETS2 (for Emissions Trading System) will be in force from January 1, 2027. It replaces the previous Fuel Emissions Trading Act (BEHG), which has set higher CO₂ prices at a certain level every year since 2021. In 2025, for example, it will be 55 euros per tonne of carbon dioxide. This corresponds to the equivalent of 14.7 cents per liter of diesel fuel and 13.2 cents per liter of premium petrol. It is unclear exactly how quickly the CO₂ price will rise as a result of EU ETS2. What is almost certain, however, is that it will happen. What are the consequences, and what answers do politicians have?

The EU ETS2 CO₂ trading system also applies to natural gas and heating oil; however, this article will focus exclusively on the effects on the fuel pump. Drivers have nothing directly to do with the CO₂ trading system. That has to be done by the so-called distributors. The oil companies are responsible for trading, which is handled by the German Emissions Trading Authority (DEHSt) at the Federal Environment Agency. Big Oil passes on the costs at the filling station.

The quantity of certificates is reduced annually

The principle of EU ETS2 is that a certificate must be purchased for every tonne of CO₂ that is released through the combustion of fossil resources. However, the number of allowances available is reduced by around 5.1 percent every year. So if CO₂ emissions fall more slowly than the number of certificates, the price – will rise, and this is very likely. The forecasts for the specific CO₂ price and subsequently for the price of diesel and premium petrol cover a very broad spectrum. For the year 2030, the spread ranges from 48 euros per tonne, i.e., seven euros less than at present, to 350 euros per tonne.

In a study 2035. This corresponds to 32.1 cents per liter of diesel and 28.8 cents per liter of premium gasoline in 2027. In 2035, according to this calculation, it would be 54.8 cents per liter of diesel and 49.2 cents per liter of premium gasoline.

In background discussions, experts see a price range of 70 to 100 euros for 2027. It could go either way. Yes, that's the nature of a trading system. Drivers can't be sure of an exact price, especially as the price of crude oil also fluctuates depending on wars, for example. The only thing that is clear is that anyone driving a car with a combustion engine will probably pay more than they do today — over the next ten years, in addition to the general price increase, of course.

The electric car may benefit –

But will the electricity for driving an electric car automatically become cheaper? Politicians would have to respond to this with a clear statement, and they are not doing so. There are various non-binding and general formulations in the federal government's coalition agreement: “We will give the CO₂ revenue back to the citizens.” Yes, of course, that is the definition of EU ETS2. The CO₂ trading system is not designed as a tax but as a redistribution mechanism. 25 percent of the revenue goes to the European Climate Social Fund, and 75 percent remains with the respective EU nation states.

Where does the money from the Social Climate Fund go?

However, the European Social Climate Fund is not only intended as a balance between rich and poor within a nation-state but also supranationally. CO₂ revenues from Germany, where around 24 percent of emissions in the EU are generated, could therefore also be spent to support a Romanian. However, the lion's share of 75 percent remains within the nation states. The German government's coalition agreement states that there are to be purchase incentives for electric cars and a support program for low- and middle-income households. Nothing more is known so far.

Dr. Katja Schumacher, Deputy Head of Energy & Climate Protection at the Öko-Institut, is more specific: “We are critical of direct purchase premiums without social differentiation because they are priced in by the car industry,” says Schumacher. Instead, she advocates three other points: “From our standpoint, social leasing of electric cars for low and middle incomes would be an option in mobility. Social control of the Deutschlandticket is also important. Local public transport must also be expanded in terms of infrastructure.

Negotiations are underway on the market stability reserve

To avoid radical price jumps, the EU ETS2 CO₂ trading system also has a market stability reserve. For example, a total of four billion allowances are earmarked for 2027 to 2030. An additional 600  million allowances can be distributed to dampen prices. High hurdles are planned to trigger this market stability reserve, such as a short-term multiplication of the CO₂ price. As is so often the case, negotiations continue in Brussels even after a law has been passed. An informal discussion paper (“non-paper”) on softening the EU ETS2 is already circulating. Germany is one of the countries that launched this paper.

Anyone considering buying a car today should therefore carefully weigh up which drive system to choose. If you hold on to a combustion engine for a long time, you can expect the price of fuel to rise steadily. Nevertheless, buyers will not receive a state guarantee for cheap electric cars and equally cheap traction current.

(mho)