ETS2 explained: the EU's second carbon market.
ETS2 is a separate EU emissions trading system for CO2 from fuel used in buildings, road transport and small industry. It is created by Directive (EU) 2023/959, regulates fuel suppliers rather than households, and becomes fully operational in 2028. Here is what it covers, who pays and what it means for companies.
What is ETS2?
ETS2 is the EU's second emissions trading system, set up by Directive (EU) 2023/959 amending the ETS Directive 2003/87/EC. It puts a carbon price on CO2 from fuel combustion in buildings, road transport and additional sectors — mainly small industry that sits outside the original EU ETS.
Unlike the original system, ETS2 does not regulate the boiler or the car. It regulates the fuel suppliers upstream, who must monitor the emissions from the fuel they release, hold a permit and surrender allowances. The cost then reaches companies and households through fuel prices.
The ETS2 dates.
| When | What happens |
|---|---|
| 1 January 2025 | Fuel suppliers must hold a permit; monitoring and reporting of fuel-related emissions begins |
| 2026 | Verified emissions data required |
| 2028 | ETS2 becomes fully operational — allowances must be surrendered by 31 May of the following year, with 30% extra allowances auctioned in 2028 for liquidity |
Source: European Commission ETS2 page (fetched 31 October 2026). The system was originally designed to start in 2027; EU institutions agreed a one-year postponement.
Who pays, in practice.
The legally regulated entities: they monitor, report and surrender allowances for the fuel they put on the market.
Transport operators, logistics, retail and offices see ETS2 as a higher fuel and heating cost — Scope 1 emissions with a price attached.
EU customers pricing carbon across their value chain will look harder at fuel use in their suppliers' Scope 1 and 3.
Two carbon prices, two directions.
ETS2 prices fuel used inside the EU. CBAM prices the embedded emissions of certain goods imported into the EU — cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. A company can be touched by both: by ETS2 through its fuel bills, and by CBAM through what it imports or exports.
Both reward the same thing: knowing your emissions precisely. A greenhouse-gas inventory to the GHG Protocol, with fuel use separated by site and vehicle, is the starting point for planning either cost. See GHG inventories and our EU Green Deal advisory.
Frequently asked.
What is ETS2 in simple terms?
When does ETS2 start?
Do households or companies have to buy ETS2 allowances?
How is ETS2 different from the EU ETS?
Know your fuel emissions before they are priced.
We build the inventory that shows where your Scope 1 emissions — and your exposure — sit.