Managing the risk of high ETS2 prices

The document warns that reforming the MSR2 before the ETS2 launches in 2027 could lead to an oversupply of allowances, weakening the price signal and jeopardizing the EU's 2030 climate target of a 42% reduction in covered emissions. It argues that high prices should be managed through 'complementary measures'—such as CO2 standards for vehicles and boiler phase-outs—and the strategic use of the Social Climate Fund and €300 billion in ETS2 revenue. The authors contend that existing safeguards, including a 'soft price cap' of approximately €55 per tonne and the early auctioning of 30% more allowances, are sufficient for the initial phase. They caution that any increase in allowance supply must be 'cap neutral' to avoid exceeding the carbon budget.

• The ETS2 already includes several price control mechanisms to prevent steep price increases, including a 'soft price cap' at an inflation-adjusted price of roughly €55 per tonne of CO2, the early auctioning of 30% more allowances in the first three years, and a market stability reserve to address shortages.
• Complementary measures—such as CO2 standards for cars and vans, fossil fuel boiler phase-outs, and the Social Climate Fund—are essential to drive down the demand for allowances and lower the ETS2 price while combating social impacts.
• Prematurely reforming the MSR2 risks an oversupply of allowances, which could lead to an ineffective price signal and make the EU's 2030 target of a 42% reduction in covered emissions unobtainable.
• The document argues that the MSR2 should operate for several years before changes are made, noting that 26 member states missed the June 2025 deadline for submitting National Social Climate Plans to mitigate the impact of ETS2 prices.
• Any measure that increases the volume of allowances released from the MSR2 must be accompanied by a proportionate removal of allowances at a later date to remain 'cap neutral' and avoid a carbon budget deficit.

APA

Scott, E. (2025). Managing the risk of high ETS2 prices. Carbon Market Watch. https://carbonmarketwatch.org/2025/07/15/managing-the-risk-of-high-ets2-prices/

Chicago

Scott, Eleanor. Managing the risk of high ETS2 prices. Carbon Market Watch, 2025. https://carbonmarketwatch.org/2025/07/15/managing-the-risk-of-high-ets2-prices/.

Wikipedia

{{cite press release |last1=Scott |first1=Eleanor |title=Managing the risk of high ETS2 prices |publisher=Carbon Market Watch |date=15 July 2025 |url=https://carbonmarketwatch.org/2025/07/15/managing-the-risk-of-high-ets2-prices/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@misc{scott2025managing, author = {Scott, Eleanor}, title = {{Managing the risk of high ETS2 prices}}, publisher = {Carbon Market Watch}, year = {2025}, month = jul, url = {https://carbonmarketwatch.org/2025/07/15/managing-the-risk-of-high-ets2-prices/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }