EU ETS expansion 2026: maritime added, ETS2 for buildings/transport launching, CBAM operational

In 50 words: EU ETS expanded 2024-2026: maritime in scope from 2024, ETS2 (buildings + road transport) launching 2027 with 2026 ramp. CBAM operational financial settlement begins January 2027. EU ETS carbon price stabilized at €70-90/tonne in 2025-2026. World's most consequential carbon pricing system continues expanding.

What EU ETS is

The European Union Emissions Trading System (EU ETS) is the world's largest and oldest cap-and-trade carbon market, operational since 2005. Covers:

• Power and heat generation (originally)
• Energy-intensive industry: steel, cement, chemicals, aluminum, glass, refining
• Aviation within EEA
• Maritime shipping (added 2024)

The cap reduces ~4.3% per year. Companies in scope must surrender allowances equivalent to their emissions or face hefty penalties. Allowances trade in the secondary market.

Where carbon prices sit

EU ETS allowance prices (€/tonne CO2):

• 2018: ~€10
• 2019: ~€25
• 2020: ~€25 (COVID dip)
• 2021: ~€60
• 2022: €70-100 (volatile, Russia crisis)
• 2023: ~€85 average
• 2024: ~€70 average
• 2025-2026: €75-90 (stabilising)

The price reflects supply/demand balance — declining cap creates scarcity; economic activity drives demand.

Maritime expansion (operational 2024)

Maritime shipping included in EU ETS from January 2024:

• 50% of emissions from voyages to/from EU ports
• 100% of intra-EU voyages
• Ramp-in: 40% allowances required 2024, 70% 2025, 100% from 2026
• Methane emissions added 2026

Implications:

• Shipping costs include carbon charge (~€100-300 per containership voyage)
• Drives demand for alternative fuels (LNG transitional, methanol/ammonia long-term)
• Already shifting some shipping patterns to avoid EU ports for highest-emitting vessels

ETS2 — buildings and road transport (operational 2027)

The Fit for 55 package created ETS2 — a separate emissions trading system covering:

• Heating fuels used in buildings
• Road transport fuels

ETS2 starts financial settlement in 2027, with monitoring + market preparation through 2026. Initial price cap ~€45/tonne (rises over time).

Implications:

• Heating oil + gas prices rise
• Petrol + diesel prices rise (~€10-20 cents/litre depending on price)
• Accelerates electrification: heat pumps + EVs
• Member states use ETS2 revenue for social climate fund (offsetting low-income impacts)

CBAM operational settlement (January 2027)

The Carbon Border Adjustment Mechanism (CBAM) transitional phase has been running since October 2023 (importers reporting embedded emissions of in-scope goods). Definitive phase financial settlement begins January 2027.

Scope:

• Cement
• Iron + steel
• Aluminum
• Fertilisers
• Electricity
• Hydrogen
• Polysilicon + wafers (added 2026)

For imports of in-scope goods, importer must surrender CBAM certificates priced at weekly average EU ETS price, less any carbon price already paid in country of origin.

Implications for Indian + Chinese exporters:

• Documentation requirements operational
• Cost impact ~€10-40/tonne depending on product + origin
• Drives interest in low-carbon production verification

Industrial decarbonisation drivers

EU ETS, ETS2, and CBAM combined create the strongest set of industrial decarbonisation incentives globally:

• Steel: green steel (H2-DRI) becoming economically competitive vs CBAM-affected imports
• Cement: clinker substitution + CCUS investment
• Chemicals: process electrification + green hydrogen
• Refining: SAF + e-fuels demand
• Aluminum: smelter electrification + green hydrogen
• Power: continued renewable expansion

Innovation Fund

EU ETS revenue funds the Innovation Fund — €40+ billion through 2030 supporting first-of-kind low-carbon industrial projects. Project examples receiving funding:

• HYBRIT green steel (Sweden)
• H2 Green Steel (Sweden)
• Cement CCUS pilots
• Battery factories

What developers should know

For renewable energy + green hydrogen + cleantech project developers:

• EU industrial customers face strong decarbonisation pressure
• Long-term offtake opportunities at premium pricing
• Innovation Fund grants available for first-of-kind projects
• Indian + Chinese exporters need CBAM-compliant supply chains

What to watch next

The interaction between ETS2 (heating + transport) launch in 2027 and member state energy poverty programs will determine political durability of expanded carbon pricing. If ETS2 increases heating bills too aggressively without social compensation, political backlash possible — undermining future EU ETS expansion ambitions.

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Researched and drafted with AI assistance; reviewed and edited by the named author within 24 hours of draft.