As the European Union prepares for the launch of ETS2, its new emissions trading system for buildings, road transport and additional sectors, the focus is increasingly shifting from political agreement to practical implementation.
With the start of the system now scheduled for 1 January 2028 following a one-year delay, the coming months will be critical in determining whether ETS2 can launch smoothly, credibly, and with sufficient market confidence.
In its latest paper, “ETS2 Readiness and Market Integrity: IETA Policy Recommendations”, IETA reaffirmed strong support for ETS2 and called for urgent action to safeguard market integrity and implementation readiness across the EU.
The challenge facing policymakers is significant. ETS2 will extend carbon pricing into sectors that directly affect households and consumers, making political sensitivity, cost predictability, and coordinated transposition across all Member States especially important. At the same time, the system is expected to play a central role in driving emissions reductions across sectors that have historically proven difficult to decarbonise.
One of IETA’s clearest recommendations is the importance of maintaining early auctions beginning in January 2027. Early auctions are not simply a technical detail, they are essential for creating liquidity, reducing price uncertainty, and allowing market participants to hedge exposure before the system formally begins.
Without adequate preparation time, the risk of market volatility and fragmented implementation increases substantially.
Another key concern is the uneven pace of national transposition across Member States. IETA has warned that inconsistent implementation timelines or unclear rules for countries that are not ready in time could undermine confidence in the system before it even starts.
“Harmonised transposition of ETS2 legislation will be crucial to safeguard the credibility of the market ahead of its planned start in 2028,” noted Svea Nyberg, EU Policy Officer at IETA.
Alongside its policy recommendations, IETA has also updated its ETS2 National Transposition Tracker, a resource designed to provide stakeholders with real-time visibility into national implementation progress, legislative developments, and ETS2 readiness across Member States.
Questions around the Market Stability Reserve (MSR) are also becoming increasingly important. While discussions continue around safeguards and intervention mechanisms, IETA has cautioned against overly restrictive or politically reactive measures that could distort the market and weaken confidence in the long-term price signal.
The debate ultimately reflects a broader challenge facing carbon markets globally: how to balance political concerns around affordability with the need for stable and credible market frameworks capable of driving long-term investment.
At the same time, Member States are being urged to accelerate the submission of their Social Climate Plans in order to unlock early support measures and revenues linked to ETS2 implementation. These mechanisms will be important not only for supporting households and vulnerable communities, but also for reinforcing public confidence in the transition.
The broader significance of ETS2 extends well beyond Europe.
As emissions trading systems continue expanding globally, highlighted recently in the World Bank’s latest State and Trends of Carbon Pricing report, ETS2 is being closely watched as one of the most ambitious attempts to apply carbon pricing across consumer-facing sectors at scale.
Its success or failure will likely shape future discussions around carbon pricing design, affordability, and market credibility in jurisdictions around the world.
The next phase for ETS2 is therefore no longer about whether the system should exist, but whether Europe can now deliver the regulatory clarity, coordinated implementation, and market integrity needed to make it work in practice.
Read the paper here
The ETS Tracker can be found in our Trackers Hub
