Europe’s New Emissions Trading System Set to Have Highest Carbon Price in the World

ould rise as much as 31-41% if costs are fully passed through. This price increase has resulted in resistance to the system from EU members including Poland, the Czech Republic and Slovakia.

Despite facing opposition, the potential benefits of the new EU Emissions Trading System II are significant. BloombergNEF anticipates that the system will generate approximately €705 billion in revenue from 2027 to 2035. Additionally, the projected surge in carbon prices is expected to result in a reduction of an extra 232 million metric tons of CO2 equivalent (MtCO2e) of direct emissions between 2027 and 2030.
The new carbon market will have a lower emission reduction target of 43% by 2030 compared to the existing system’s 62%. With the expansion of the market, 78% of total greenhouse gas emissions from the European Economic Area (EEA) will be covered by a carbon price from 2027 onwards.
Emma Coker, head of European environmental markets at BloombergNEF and co-author of the report, emphasized the necessity of commitment across all sectors to achieve the EU’s climate objectives. Addressing emissions from road transport and buildings, which contribute significantly to overall emissions, poses challenges, particularly when this directly impacts consumers.
“Our forecasts indicate a sharp rise in carbon prices starting in 2027, directly influencing consumer bills. However, the short-term struggles will diminish as early emission reductions and declining prices in low-carbon solutions like electric vehicles (EVs) and heat pumps will lead to price reductions post-2030,” Coker stated.

The outlook for the EU Emissions Trading System II suggests that by 2030, carbon prices in Europe could reach €149 per metric ton, potentially becoming the highest globally. This surge is anticipated to play a crucial role in reducing emissions in the region and fostering a transition towards a low-carbon economy.

As the launch of the EU ETS II approaches, the focus shifts towards addressing the challenges and opportunities presented by the new emissions trading system. With the potential for significant revenue generation and emissions reductions, the system aims to drive substantial change in reducing carbon emissions across various sectors, setting a milestone in the global fight against climate change.