What is EU ETS2 and how does it affect fuel prices?

ETS2 (EU Emissions Trading System 2) is a new carbon market covering road transport fuels and buildings heating fuels, created under the EU's Fit for 55 package. Unlike the existing EU ETS1 (which covers power plants and heavy industry), ETS2 operates at the fuel distributor level — companies that release petrol, diesel, or heating oil into the EU market must hold ETS2 allowances for the CO2 emissions associated with burning those fuels. ETS2 formally starts in 2027. A carbon price of approximately €45–55/tonne CO2 at launch is anticipated, equivalent to approximately 10–13 ct/litre additional cost on petrol and diesel. This cost is expected to be passed through to pump prices.

What is the Carbon Border Adjustment Mechanism (CBAM)?

The EU Carbon Border Adjustment Mechanism (CBAM) is a carbon tariff on imports of certain carbon-intensive goods into the EU — currently covering steel, cement, aluminium, fertilisers, electricity, and hydrogen. It is designed to prevent 'carbon leakage' — where EU producers face carbon costs but competitors from countries without carbon pricing do not. CBAM does not directly apply to imported refined petroleum products (petrol, diesel) in its current form. However, it does apply to the production of some refinery feedstocks and petrochemicals. The interaction between CBAM and ETS2 for transport fuels will be an evolving policy area through 2027.

How much will ETS2 add to petrol and diesel prices?

At the anticipated ETS2 launch price of €45–55/tonne CO2 in 2027, the additional pump price impact on petrol and diesel would be approximately 10–13 ct/litre. Petrol combustion produces approximately 2.3 kg CO2/litre; at €50/tonne, this equates to approximately €0.115/litre. Diesel combustion produces approximately 2.65 kg CO2/litre; at €50/tonne, approximately €0.133/litre. If ETS2 allowance prices rise above €100/tonne (a possibility if the market tightens quickly), the impact could reach 23–27 ct/litre. The EU has included a price stability mechanism (allowance release if prices exceed €45/tonne for consecutive months) to limit extreme price spikes.

EU Carbon Border Adjustment & ETS2: What It Means for Fuel Prices in 2026–2027

Published 1 September 2026 · Updated 16 October 2026

Two major EU climate policy instruments are reshaping the economics of fuel in Europe through 2026–2027: the Carbon Border Adjustment Mechanism (CBAM) and the new ETS2 Emissions Trading System for road transport and buildings. Together they represent the most significant structural addition to European fuel pricing since the introduction of fuel excise duties — and ETS2 in particular will directly add a carbon cost to every litre of petrol and diesel sold in the EU from 2027.

For live European fuel prices that already incorporate existing carbon taxes, use the fuel price explorer. For existing carbon tax mechanisms, see our carbon tax glossary entry. For the ETS carbon price instrument, see our ETS carbon price glossary entry.

ETS2: the new carbon market for road fuels

ETS2 is created under the EU's revised Emissions Trading System Directive as part of the Fit for 55 package. Key features:

Scope: Covers CO2 from combustion of road transport fuels (petrol, diesel) and building heating fuels (heating oil, natural gas for space heating) across all EU member states
Who is obligated: Fuel distributors (companies releasing fuels to the market) must hold ETS2 allowances — not individual consumers or vehicle operators. The cost is passed downstream to fuel wholesale and retail prices.
Start date: 2027 (delayed from the originally planned 2025 start following political negotiation)
Price stability: A price containment mechanism releases additional allowances if prices exceed €45/tonne CO2 for more than three consecutive months
Revenue: 25% of ETS2 revenues fund the Social Climate Fund (SCF) — a dedicated EU fund to support vulnerable households and SMEs facing higher energy costs

Estimated pump price impact of ETS2

ETS2 allowance price	Additional cost — petrol (ct/l)	Additional cost — diesel (ct/l)	Scenario probability
€25/tonne CO2	~5.8 ct/l	~6.6 ct/l	Low (price floor likely higher)
€45/tonne CO2	~10.4 ct/l	~11.9 ct/l	Base case launch price
€65/tonne CO2	~14.9 ct/l	~17.2 ct/l	Mid-cycle tightening scenario
€100/tonne CO2	~23.0 ct/l	~26.5 ct/l	Long-run tight market scenario

ETS2 vs existing carbon taxes
Several EU member states (France, Sweden, Switzerland, Finland) already apply national carbon taxes on transport fuels above the minimum EU excise levels. France's Composante Carbone is ~€50/tonne CO2 embedded in its TICPE excise. ETS2 will overlay on top of existing national carbon taxes — creating potential double-counting that member states will need to resolve through excise adjustments. For France's existing carbon component, see our France fuel prices 2026.

ETS2 implementation timeline

Date	Milestone
2023	Revised ETS Directive adopted (EU 2023/959); ETS2 formally established
2024–2025	Member state transposition; registry infrastructure; distributor registration
2026	Monitoring and reporting obligations begin; fuel distributors must track emissions from fuels released
2027 (January)	ETS2 trading and compliance begins; first allowances must be surrendered
2030	ETS2 cap tightens; allowance supply reduced; prices expected to rise toward €65–100/tonne
2035+	Full integration with overall EU climate architecture; alignment with 55% emissions reduction target

CBAM and its indirect fuel market effects

The Carbon Border Adjustment Mechanism does not directly cover imported petroleum products in its Phase 1 scope (steel, cement, aluminium, fertilisers, electricity, hydrogen). However, it has indirect effects on fuel supply chains:

Hydrogen covered by CBAM incentivises low-carbon hydrogen imports, supporting the EU's HVO and hydrogen fuel cell transport goals
The CBAM principle — requiring importers to pay for the carbon content of goods — could be extended to refined fuels in a future revision, though this would be technically complex
CBAM affects steel and aluminium costs for vehicle manufacturing, indirectly influencing the economics of fleet transition

For how carbon costs interact with the energy transition, see our energy transition glossary entry. For how existing fuel taxes relate to carbon policy, see our excise duty glossary entry and carbon tax and fuel prices analysis.

Social Climate Fund: offsetting ETS2's regressive impact

ETS2's pump price impact is regressive — lower-income households spend a higher share of their income on transport fuel and have less ability to switch to EVs or reduce driving. The EU's Social Climate Fund (SCF) is designed to offset this:

Budget: approximately €86 billion over 2026–2032, funded by 25% of ETS2 revenues
Uses: direct income support for vulnerable households; investment in public transport; EV subsidies targeting lower-income groups; building renovation for energy efficiency
Distribution: through national social climate plans submitted by member states

Frequently asked questions

What is EU ETS2 and how does it affect fuel prices? ETS2 is a new EU carbon market covering road transport fuels and building heating, starting in 2027. Fuel distributors must hold carbon allowances for the CO2 in fuels they release to market; the cost passes through to pump prices. At an anticipated launch price of €45/tonne CO2, ETS2 adds approximately 10–12 ct/litre to petrol and diesel prices across the EU.: ETS2 is a new EU carbon market covering road transport fuels and building heating, starting in 2027. Fuel distributors must hold carbon allowances for the CO2 in fuels they release to market; the cost passes through to pump prices. At an anticipated launch price of €45/tonne CO2, ETS2 adds approximately 10–12 ct/litre to petrol and diesel prices across the EU.
What is the Carbon Border Adjustment Mechanism (CBAM)? CBAM is an EU carbon tariff on imports of carbon-intensive goods (steel, cement, aluminium, fertilisers, electricity, hydrogen) to prevent carbon leakage. It does not currently cover imported refined petroleum products. Its main indirect fuel market effect is through incentivising low-carbon hydrogen production and imports, relevant to future fuel cell and HVO supply chains.: CBAM is an EU carbon tariff on imports of carbon-intensive goods (steel, cement, aluminium, fertilisers, electricity, hydrogen) to prevent carbon leakage. It does not currently cover imported refined petroleum products. Its main indirect fuel market effect is through incentivising low-carbon hydrogen production and imports, relevant to future fuel cell and HVO supply chains.
How much will ETS2 add to petrol and diesel prices? At the base case launch price of €45/tonne CO2 (2027), ETS2 adds approximately 10.4 ct/l to petrol and 11.9 ct/l to diesel. A price stability mechanism caps extreme spikes by releasing additional allowances if prices exceed €45/tonne for three months. Long-run prices could reach €65–100/tonne, adding 15–27 ct/l — a significant structural addition to European fuel costs.: At the base case launch price of €45/tonne CO2 (2027), ETS2 adds approximately 10.4 ct/l to petrol and 11.9 ct/l to diesel. A price stability mechanism caps extreme spikes by releasing additional allowances if prices exceed €45/tonne for three months. Long-run prices could reach €65–100/tonne, adding 15–27 ct/l — a significant structural addition to European fuel costs.