ETS2: the EU's new emissions trading system explained

The European Commission has created a new emissions trading system called ETS2, separate from the existing EU ETS. The difference? This one targets specifically the CO₂ emissions from fuels used in buildings, road transport, and small industry that was not covered by the previous system.

This is not a minor change. Emissions in these sectors have not fallen fast enough to meet the 2050 climate neutrality target. With ETS2, Europe is putting a price on carbon in sectors that affect businesses of all sizes — and yes, the end consumer too.

Timeline

Date	What happens
January 2025	Monitoring and reporting obligation begins. Fuel suppliers need a GHG emissions permit and an approved monitoring plan
April 2026	First verified emissions report (covering 2025 data)
2027	System becomes fully operational. Emissions allowance auctions begin
May 2028	First mandatory allowance surrender (for 2027 emissions). Note: if gas and oil prices spike in 2026, the start could be delayed to 2028

Who is directly affected?

Buildings

Combustion of fossil fuels for heating and cooling in residential, commercial, and institutional buildings. Natural gas, heating oil, and other fuels fall under ETS2.

Road transport

All vehicles: passenger cars, light commercial vehicles, trucks, and buses. A sector that has historically been difficult to decarbonise through other policies.

Additional sectors

Small industry not covered by the existing EU ETS — typically smaller manufacturing operations and industrial processes below the main system’s thresholds.

How it works

Upstream regulation

The regulated parties are fuel suppliers, not end consumers. They must monitor, report, and surrender emissions allowances for the fuels they sell. The cost will pass through to consumers — but the administrative burden falls on suppliers.

Reduction target

The ETS2 emissions cap is designed to achieve a 42% reduction by 2030 relative to 2005 levels. All allowances will be auctioned (no free allocation), creating a clear price signal to invest in decarbonisation.

Price stability mechanism

During the first three operating years, if the allowance price exceeds €45 (in 2020 prices, adjusted for inflation), additional allowances can be released from the stability reserve to prevent excessive price spikes.

Social Climate Fund

To ensure a just transition, Member States must use ETS2 revenues for climate action and social measures. A Social Climate Fund will support vulnerable households and micro-enterprises during the energy transition.

What this means for your business

Even if your company is not a fuel supplier (the directly regulated entities), ETS2 will affect you. Carbon costs will pass through the value chain. If your organisation has buildings to heat, vehicles to run, or depends on transport, your energy bills will reflect this new carbon price.

How Dcycle helps

Precise carbon footprint measurement Dcycle calculates your Scope 1 and 2 emissions from buildings and transport using GHG Protocol methodology. This data is the foundation for understanding how much carbon cost pass-through from fuel suppliers will affect you.

Decarbonisation scenario planning Retrofitting buildings? Electrifying your fleet? Investing in energy efficiency? Dcycle helps you analyse different scenarios and see the real impact on your emissions and your exposure to ETS2 costs — decisions based on data, not intuition.

Direct integration with CSRD reporting The impact of ETS2 is material information for your sustainability report. Dcycle connects your carbon data to CSRD and ESRS disclosure requirements, so you do not duplicate work and have everything in a single source of truth.

Supply chain data management When your suppliers and customers start asking about transport and heating emissions, you will need answers. Dcycle helps you collect and manage Scope 3 data linked to activities covered by ETS2.