EU Parliament Advances ETS2 Plan to Stabilize Carbon Market for Transport and Buildings

The European Parliament approved the negotiating proposal for the new carbon market for transport and buildings (ETS2), focusing on a key objective: making the climate transition more stable and economically sustainable. Negotiations with the countries now begin.

The goal is to make ETS2 one of the pillars of the European decarbonisation strategy

The European Parliament (EP) has given the green light to strengthening the stability reserve for the new ETS2 carbon market, which will apply to transport and buildings from 2028. The text, approved by 433 votes in favor, 120 against, and 91 abstentions, attempts to balance climate ambition and economic sustainability , paving the way for negotiations with the EU Council.

At the heart of the EP’s negotiating position is the strengthening of the Market Stability Reserve (MSR), in line with the proposal presented by the European Commission in early April. The shared approach aims to move beyond the automatic cancellation of excess allowances, instead maintaining them in the reserve for reuse in times of market stress.

Compared to the Commission’s proposal, Parliament introduces further flexibility . These include the possibility of releasing allowances early in the event of sudden price spikes and of maintaining unallocated allowances in the MSR beyond 2031 , strengthening the system’s ability to respond to energy crisis scenarios.

Another key point of the ETS2 plan concerns price controls

The approved position calls for extending the indicative ceiling of €45 per tonne of CO₂ beyond 2029 , updating it on more recent bases to avoid distortions related to outdated parameters. The goal is to limit volatility and ensure greater predictability of carbon pricing.

The heart of the reform remains ETS2, the new system that will come into force on January 1st, 2028, and which will extend the price of emissions to sectors previously excluded, such as building heating, road transport, and some small-scale industry. This measure is considered essential for reducing emissions in widespread sectors, but also particularly sensitive from a social perspective.

For this reason, Parliament’s position strongly emphasizes the need to accompany the mechanism with adequate guarantees. The approach outlined aims to strengthen the stability reserve’s ability to intervene in the event of price shocks, preventing market fluctuations from translating into excessive increases in costs for families and consumers.

Among the elements under discussion are also a more gradual management of excess quotas, with any cancellation postponed to the years following the launch of the system, and the possibility of introducing margins of flexibility for Member States , for example in the presence of already effective national measures for the decarbonisation of the residential sector.

The position approved by Strasbourg comes in a context marked by energy volatility and macroeconomic uncertainty , in which the carbon market must evolve to remain an effective climate policy instrument, according to the EP. The text now forms the basis for negotiations with national governments, which will lead to the final version of the reform.

The goal remains to make ETS2 one of the pillars of the European decarbonisation strategy, capable of combining emissions reduction, price stability, and the social sustainability of the transition.

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(Featured image by Frederic Koberl via Unsplash)

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First published in ESG NEWS. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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