The European Union is preparing to implement ETS2 in 2027, extending the carbon market to residential heating and road transport. According to Magnus Commodities, this could increase natural gas prices for end consumers by up to 50%.

“ETS2 marks a paradigm shift,” says Alejandro de Roca, Head of Markets at Magnus Commodities. “For the first time, the cost of carbon will directly affect households and businesses, requiring strategic responses in energy consumption and planning.”

The Context: From ETS1 to ETS2, the Evolution of Europe’s Carbon Market

Since 2005, Europe has operated the ETS1 system, which regulates carbon emissions in industrial and power generation sectors, incentivizing clean technologies—albeit with an impact on energy costs.

The new ETS2 expands this regulation to sectors such as heating and buildings, promoting efficiency and ecological transition. It is set to become fully operational in 2027 (or 2028 if energy prices rise in 2026) and aims to reduce emissions by 42% by 2030 compared to 2005 levels.

Implementation Timeline: A Gradual Transition Toward 2028

The rollout of ETS2 will follow a carefully planned schedule to ensure an orderly and efficient transition. Magnus Commodities has identified four key phases in this process:

2025: Start of Emissions Monitoring and Reporting

From January 1, 2025, regulated entities must report their CO₂ emissions. This registry will be crucial for the future allocation of emission allowances.

2026: Establishment of the Social Climate Fund

The Social Climate Fund will be created, using 50% of ETS2 revenues to support vulnerable households and microenterprises. It is expected to mobilize at least EUR 86.7 billion between 2026 and 2032.

2027: Auctioning of Emission Allowances and System Entry into Force

Auctions of emission allowances will begin in 2027, one year before the surrender obligation starts (2028). In that first year, an additional 30% will be auctioned to ensure liquidity and facilitate the transition.

2028: Obligation to Surrender Emission Allowances

From 2028 onward, regulated entities will be required to surrender emission allowances equivalent to their CO₂ emissions from the previous year. This “cap-and-trade” mechanism will incentivize emissions reductions by setting a maximum cap that decreases annually.

Economic Impact: When Carbon Reaches the Home

ETS2 will directly affect energy costs for European consumers by including fossil fuels used for heating and transport within the carbon pricing system. This will result in higher bills, as suppliers pass the cost on to final prices.

According to Magnus Commodities, ETS2 futures began trading in May 2025 at prices close to EUR 73 per tonne of CO₂. This could translate into an additional EUR 15/MWh for natural gas and price increases of up to EUR 0.13 per liter for diesel. Projections for 2030 estimate prices of up to EUR 259 per tonne, potentially increasing fuel costs by more than EUR 0.50 per liter.

ETS1 vs. ETS2: Two Systems, One Common Goal

ETS2 will operate independently from ETS1, which regulates large industries and power generation. While ETS1 applies to major installations, ETS2 will cover fuels used in heating, buildings, and road transport.

Under ETS2, fuel suppliers—not consumers—will be the regulated entities. However, the cost of carbon will ultimately be passed on to end users. “Unlike ETS1, ETS2 will directly affect households through their energy bills,” explains Alejandro de Roca of Magnus Commodities.

Implementation Challenges: Political and Social Resistance

The rollout of ETS2 has sparked controversy. Although Member States were required to transpose the directive by June 2024, only Austria complied. The European Commission has launched infringement proceedings, while countries such as Poland, Czechia, and Estonia have called for delays on socioeconomic grounds.

Cases such as Canada—where a carbon tax was repealed due to lack of public acceptance—highlight the importance of effective communication. The EU has created the Social Climate Fund as a compensatory measure, although doubts remain as to whether it will be sufficient to mitigate the regressive effects of ETS2.

Price Stabilization Mechanisms

To prevent extreme fluctuations in carbon prices, ETS2 will include a Market Stability Reserve. During the first three years of operation, if allowance prices exceed EUR 45 per tonne (in 2020 prices, adjusted for inflation), additional allowances may be released from the reserve to address excessive price increases.

Allowances may also be released if prices rise too rapidly. The rules and conditions for such releases are defined in the ETS Directive, although experts such as those at Magnus Commodities note that this mechanism has limitations in terms of responsiveness and volume, raising uncertainty about its effectiveness in the event of price spikes.

Operational Effects Already Visible

According to Magnus Commodities, ETS2 is already beginning to have operational impacts. Gas suppliers are collecting consumption and emissions data, and many energy contracts for 2027 and beyond now include clauses allowing ETS2 costs to be passed on to customers.

“Futures already reflect the expected impact,” says Alejandro de Roca. In May 2025, prices hovered around EUR 73 per tonne of CO₂. This will particularly affect vulnerable households and small businesses without immediate access to more sustainable alternatives.

Recommendations for Consumers and Businesses

In light of the imminent impact of ETS2, Magnus Commodities advises households and businesses to take proactive measures to reduce costs. For households, recommendations include improving insulation, considering heat pumps, and evaluating the installation of renewable energy systems.

For SMEs—until now largely unexposed to the carbon market—it is essential to review energy contracts and invest in efficiency. “Acting now will create a competitive advantage,” says Alejandro de Roca, Head of Markets at Magnus.

Future Outlook: Toward Market Convergence

Although ETS2 will be implemented between 2027 and 2028, some Member States continue to express concern about its social and economic impact. The European Commission insists on maintaining the timeline and is pressing ahead with enforcement actions against lagging countries.

From 2030 onward, ETS1 and ETS2 prices are expected to converge, creating a more integrated carbon market across the EU. While the system will raise costs in the short term, it will incentivize energy efficiency, the phase-out of fossil fuels, and the adoption of renewables. Its success will depend on social acceptance and effective support for the most vulnerable.

The Importance of Specialized Advisory Services

Amid the transformation of the European energy market, expert advisory support such as that provided by Magnus Commodities is becoming increasingly vital. The Barcelona-based firm, specialized in large energy consumers, offers tailored analyses to address ETS2 from a strategic perspective.

“It’s not just about absorbing new costs, but about identifying efficiency opportunities and turning the challenge into an advantage,” says Alejandro de Roca. With extensive experience in decarbonization and energy markets, Magnus Commodities positions itself as a key ally for companies seeking to adapt and thrive.

Magnus Commodities