The EU ETS 2 in Focus: CBAM and the Pricing of CO₂ in Buildings and Transport
CBAM Weekly – Issue 67
The EU ETS 2
The European Union is preparing to launch a second emissions trading system. This new system, known as EU ETS 2, will cover emissions from buildings, road transport and smaller combustion sources that have so far not been included in the existing EU ETS 1. Although EU ETS 2 is technically a separate system, it marks a decisive shift in European carbon pricing. At the same time, it raises important questions about the further development of CBAM and a potential expansion of its scope. In Germany, the national emissions trading system is already in force, and will be integrated into the European solution with the introduction of EU ETS 2.
A new CO₂ market is about to begin
On 21 October, the European Commission published proposals to ensure a stable launch of the EU ETS 2. These include earlier auctions of emission allowances in 2026 as well as instruments to prevent strong price volatility during the initial years. The aim is to give companies and consumers sufficient time to adapt and to build confidence in the new system. The EU ETS 2 brings carbon pricing closer to daily life. While the original EU ETS was designed for industry and power generation, EU ETS 2 will now apply to buildings and transport. This makes one thing clear: CO₂ costs will no longer apply only to specific sectors, but will become a general principle of European climate policy. With this, the European Commission is also sending a strong signal at this very moment to voices in industry that have been critical of carbon pricing and see their competitiveness at risk as a result.
Why EU ETS 2 will have an impact on CBAM
CBAM was introduced to ensure that imported goods are subject to the same CO₂ costs as EU products that are already covered by emissions trading. Now that EU ETS 2 is introducing additional costs for European companies, a new imbalance is emerging. Sectors such as construction and transport will soon be paying for their emissions – while their foreign competitors initially will not. There is currently no official proposal to extend CBAM to the sectors covered by EU ETS 2. However, first political discussions are already taking place in this direction. These focus primarily on finished goods and downstream products linked to construction, logistics or energy consumption – all areas that will fall under EU ETS 2. Refining was also mentioned in one of the European Commission’s webinars as a new industrial sector being considered for a potential expansion of CBAM’s scope. In addition, the introduction of EU ETS 2 and the associated extension of carbon pricing to transport could also affect the system boundaries of CBAM’s emissions monitoring. Up to now, transport emissions of imported goods are still excluded from emissions monitoring and therefore from pricing. This could change. The CBAM regulation foresees a corresponding review before the end of the transitional phase.
What companies need to know now
The expansion of carbon pricing within the EU will sooner or later also affect CBAM. Companies that have so far not been subject to CBAM because they do not import basic materials such as steel or cement could fall into scope in the future. Many products that are not currently covered by CBAM could soon become relevant. This would bring new reporting obligations, as well as the need to obtain emissions data from suppliers who have never before been confronted with such requirements. Emissions monitoring for third-country manufacturers or importers in other sectors could also become more complex, and goods could become correspondingly more expensive if more emission sources are included. The change will not come overnight, but it is foreseeable. CO₂ costs will no longer apply only to energy and basic materials, but to entire supply chains. Prepare strategically now It will be interesting to see to what extent CBAM will not only complement EU ETS 1, but also the new EU ETS 2. The decisive criterion will once again be the risk of production – and therefore emissions – relocating outside the EU. The more sectors in the EU are exposed to CO₂ costs, the more likely it becomes that an adjustment mechanism at the border will be required. Companies should therefore start investing early in emissions-related data systems, supplier engagement and strategic assessments in order to remain able to act.
Conclusion
EU ETS 2 fundamentally changes the way Europe applies CO₂ costs. It is only a matter of time before this development is also reflected in CBAM. Companies should not wait until a formal expansion is decided. Now is the right moment to analyse their own imports, assess the availability of supplier data and prepare for a broader CO₂ cost environment. If you would like to prepare your company for the future interaction between CBAM and EU ETS 2, feel free to contact me at helge@kolum.earth. We are here to support you.