A new carbon price is heading for sectors that have so far stayed outside the system. From 2028, the cost of carbon reaches the fuel that heats offices, powers delivery fleets, and runs small industrial sites across the European Union. The mechanism behind the shift is ETS2, the EU’s second emissions trading system. It extends carbon pricing to road transport, buildings, and additional fuel-use sectors for the first time.
For businesses that have never tracked a carbon cost before, the change raises practical questions about exposure, timing, and preparation. This article sets out what ETS2 is, who it affects, when it starts, and what it means for the organisations now in its path.
In short, ETS2 is a cap-and-trade carbon market that places a price on the carbon emissions from fuel burned in buildings, road transport, and small industry. The obligation to buy and surrender allowances sits with fuel suppliers, not with the businesses and households that use the fuel. Those upstream costs travel downstream through fuel and heating bills, which lifts operating costs across the affected sectors.
The system starts on 1 January 2028 after a one-year delay, with a price-stability mechanism designed to hold the early carbon price near €45 per tonne. The practical task for businesses is to understand their fuel-related exposure now, reduce it at source where possible, and plan for a cost that tightens over time.
ETS2 is the European Union’s second emissions trading system. It works on the same cap-and-trade principle as the original EU ETS: A cap sets the total volume of carbon emissions allowed, that volume is divided into allowances, and the cap falls each year so emissions decline over time. The system covers the carbon emissions from fuel combustion in three areas: road transport, buildings, and small industrial installations below a set emissions threshold. The European Commission runs it as a separate market with its own cap, its own allowances, and its own registry.
The original system, now known as ETS1, covers power generation, heavy industry, aviation, and shipping. ETS2 sits alongside it and addresses the emissions that ETS1 leaves out. Together, road transport and buildings account for a large share of Europe’s carbon emissions: around 1,235 million tonnes of carbon dioxide equivalent in 2023, with road transport making up the majority, according to the European Environment Agency. Bringing those emissions inside a carbon market gives them a price for the first time.
ETS2, the EU carbon market for buildings and transport, places its compliance obligation upstream. The regulated entities are the fuel suppliers: the companies that place petrol, diesel, heating oil, and natural gas on the market for combustion. Each supplier monitors the carbon content of the fuel it sells, reports it, and surrenders one allowance for every tonne of carbon dioxide produced.
Most businesses in buildings and road transport carry no direct surrender obligation of their own. They meet ETS2 through price. Fuel suppliers pass the cost of allowances down the chain, so heating, fuel, and energy bills rise. A commercial landlord running gas boilers, a logistics operator with a diesel fleet, and a small manufacturer heating a workshop each face higher input costs. The cost reaches them through their fuel bills rather than through an allowance account.
This is the distinction that matters for planning. Direct compliance is a fuel-supplier responsibility. Cost exposure is a whole-economy reality. The businesses most affected are the ones with the heaviest reliance on fossil fuels for heat and movement.
The ETS2 start date is now 2028. The date moved back by a year: In March 2026, the European Parliament and the Council formally adopted a one-year postponement from the original 2027 start, giving member states more time to prepare, as noted by the International Carbon Action Partnership.
The phase-in runs in stages:
The delay shifted the timing by a year. The direction of travel holds: the auctions, the verification requirement, and the surrender obligation all remain set for a 2028 start.
The ETS2 carbon price depends on the market, with guardrails built in for the early years. The European Commission’s impact assessment expected allowance prices in the range of €45–€80 per tonne of carbon dioxide in the system’s first phase.
A price-stability mechanism aims to keep the early price in check. The system sets a threshold of €45 per tonne, measured in 2020 prices, which works out near €55 in today’s terms. When the price climbs above that threshold, the market stability reserve releases extra allowances to ease it back down. In the latest development, negotiators agreed in June 2026 to strengthen that mechanism: The volume released when the trigger is hit doubles to 40 million allowances, the reserve can act twice a year, and its role extends beyond 2030.
The ETS2 cost for businesses is set to tighten over time. The ETS2 cap falls by 5.15% a year, a faster annual reduction than ETS1’s, according to ABN AMRO research. As the cap declines and every allowance goes to auction with no free allocation, the carbon price is expected to rise through the 2030s. For a business modelling future costs, €45 per tonne reads as a floor to plan around rather than a ceiling to rely on.
The revenue ETS2 raises is tied to support. Auctioning allowances generates funds, and a significant share flows into the Social Climate Fund. The Fund is set to mobilise at least €86.7 billion between 2026 and 2032, drawing on ETS2 auction revenue, allowances from ETS1, and a mandatory contribution from member states. It channels money towards energy renovations, cleaner heating, public transport, and direct help for the households and small businesses most exposed to higher fuel costs.
Support is already moving ahead of the start date. In February 2026, the European Investment Bank launched a €3 billion ETS2 Frontloading Facility, developed with the European Commission. It lets member states pre-finance programmes, from heat pump rollouts and building retrofits to electric vehicle uptake, before ETS2 revenue starts to flow. Each member state sets out its measures in a national Social Climate Plan. For businesses, these programmes are worth tracking, because the support landscape shapes the cost of switching to cleaner heat and transport, and it varies by country.
Preparation for ETS2 starts with visibility. The businesses that handle the transition best are the ones that understand their fuel-related carbon exposure before the price takes effect. Four steps make the task manageable:
The phrase ETS2 compliance preparation describes a fuel-supplier task in the strict sense. For most businesses, the equivalent work is exposure management: knowing the number, lowering it, and budgeting for the rest. Smaller firms have the same task on a smaller scale, and the carbon market increasingly speaks to them directly.
Is ETS2 the same as the EU ETS?
No. ETS2 is a separate system from the original EU ETS, now called ETS1. ETS1 covers power, heavy industry, aviation, and shipping. ETS2 covers fuel use in buildings, road transport, and small industry. Each has its own cap, allowances, and price.
Do small businesses have to buy ETS2 allowances?
In most cases, no. The obligation to buy and surrender allowances sits with fuel suppliers. Small businesses meet ETS2 mainly through higher fuel and heating costs passed down from those suppliers.
Can carbon credits be used for ETS2 compliance?
No. ETS2 compliance requires ETS2 allowances. Carbon credits from the verified carbon market are a separate instrument. They support a broader environmental strategy and help compensate for residual emissions, and they sit outside the ETS2 system.
When does ETS2 start?
1 January 2028, following a one-year delay confirmed in March 2026. Monitoring runs from 2025, verified reporting from 2026, and auctions from 2027.
ETS2 marks a turning point for carbon pricing in Europe. For the first time, the cost of emitting reaches the everyday fuel that heats buildings and moves goods. That cost reframes a question many businesses have treated as optional. Measuring and reducing carbon emissions becomes a matter of operating cost, and the case for acting early grows stronger as the cap tightens.
The verified carbon market plays a defined role in that wider response. It works alongside emission cuts rather than replacing them, and it sits outside ETS2 compliance entirely. For businesses with their own environmental commitments, it offers a credible way to compensate for the residual emissions that reduction has yet to reach. Nature-based carbon credits—those that fund the restoration and protection of forests, soils, and ecosystems—add lasting environmental value alongside the carbon they represent.
ETS2 puts a clearer price on carbon. The businesses that act early, measure honestly, and plan for a rising cost will meet 2028 on steadier ground.