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EU ETS 2 Directive

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EU ETS 2: Expanding the Carbon Market to Transport and Buildings

As the EU continues to ramp up its climate ambitions, a significant new development is on the way: EU ETS 2. This new phase of the Emissions Trading System is set to extend the scope of carbon pricing beyond the sectors covered under the existing EU ETS, targeting road transport and buildings.

The ETS2, which will become fully operational in 2027. As a first step, the monitoring and reporting of emissions will begin in 2025. Over the course of 2027, a 30% higher volume of allowances will be auctioned to provide market liquidity. As in the existing EU ETS, the ETS2 will operate with a dedicated, rule-based market stability reserve to mitigate insufficient or excessive supply of allowances to the market.

What is EU ETS 2?

Unlike the current EU ETS, which regulates large industrial emitters and the energy sector, EU ETS 2 will focus on the fuel suppliers for road transport and heating. Under this new system, companies supplying fuels like petrol, diesel, heating oil, and natural gas will be required to buy emissions allowances for the CO2 released when their fuels are burned.

This shift is driven by the need to price carbon more effectively across the economy, particularly in sectors that have been historically difficult to decarbonize. The legislative basis for ETS 2 is outlined in Directive (EU) 2023/959.

When Will EU ETS 2 Take Effect?

The European Parliament and Council of the EU have agreed that ETS 2 will be fully operational in 2027. As a first step, the monitoring and reporting of emissions will begin in 2025. Over the course of 2027, a 30% higher volume of allowances will be auctioned to provide market liquidity. As in the existing EU ETS, the ETS2 will operate with a dedicated, rule-based market stability reserve to mitigate insufficient or excessive supply of allowances to the market.

Sectors Included in EU ETS 2

EU ETS 2 will include:

• Road transport: All fuel suppliers for passenger vehicles, commercial fleets, and logistics services will be required to purchase allowances for their CO2 emissions.

• Building heating: This includes residential and commercial heating fuels, such as natural gas, heating oil, and coal.

• Small industries: Smaller industrial sectors, which were outside the scope of the original EU ETS, will also be required to participate in EU ETS 2.

Higher Fuel Prices as a consequence

A big consequence of EU ETS 2 will be a notable rise in fuel prices. Carbon Expert analysts predict an increase of approximately €0.50 per litre at the pump for both petrol and diesel. This is driven by the fact that fuel suppliers will need to purchase emissions allowances, which they are expected to pass on to consumers.

While this will put immediate financial pressure on households and businesses, it is designed to push the market towards lower-carbon alternatives. Electric vehicles, public transport, and energy-efficient buildings will become automatically more attractive as the costs of traditional fuel-based systems rise.

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Carbon Expert provides specialized consultancy in the EU ETS 2 market and offers services to guide you through the complexity of these regulations related to reporting, monitoring and trading. With over 15 years of expertise in sustainability and emissions trading, Carbon Expert supports you in understanding the financial impact, identifying opportunities for emissions reduction, and implementing effective strategies to adapt to new requirements.

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Composting Manure Leads to a Reduction in Methane Emissions

Did you know that any process of composting manure through aerobic fermentation leads to a reduction in methane emissions, which automatically translates into CO2e savings?

And that this can turn into carbon credits?

These questions were addressed in Bucharest on October 2, 2024, in a transparent, interactive, and professional manner by Carbon Expert and Kofert Organic during the stakeholder meeting for the composting projects developed by Kofert Organic in Mihăilești, Giurgiu County, and Băicoi, Prahova County.

The meeting was attended by decision-makers from the Ministry of Environment, the Environmental Fund Administration, and the National Environmental Guard, independent Romanian experts, and representatives from the Circular Economy Coalition. Additionally, there was a renowned and significant international presence, including technology producer Kohshin Engineering Co – Japan, Marubeni Corporation – Japan, Kohshin Europe – Romania, as well as companies from Bulgaria, Hungary, and Saudi Arabia.

The two projects aim to implement Japan’s Kohshin technology for the automated composting of manure and organic fertilizer production, addressing two urgent challenges: manure waste management and soil health improvement. Through partnerships with livestock farms and agricultural enterprises, Kofert Organic is implementing a sustainable solution to turn manure into organic fertilizer, contributing to the United Nations’ Sustainable Development Goals.

“We are delighted with the receptiveness of the Romanian business environment towards adopting innovative technologies and express our hope that the two Kofert projects will achieve their decarbonization goals. Through our direct involvement, we aimed to provide Kohshin partners with an improved algorithm for increasing sustainability, by adding new revenue streams through the monetization of carbon credits,” said Kazunori Sumiya, CEO of Kohshin Engineering Co, Japan.

The main objective of the stakeholder meeting was to understand the project certification process to obtain CO2 credits, as a source for the future development of Kofert Organic’s sustainability.

The partnership between Carbon Expert and Kofert Organic materialized through the completion of pre-feasibility studies to certify the projects with the Gold Standard organization in Switzerland for both projects, analyzing the certification criteria, the steps to follow, associated benefits, and the projects’ environmental and community impact, essential aspects for realizing the projects’ potential in reducing methane emissions.

“For Carbon Expert, the partnership with Kofert Organic, Kohshin Engineering Co, and Kohshin Europe represents a dream come true in our path to development. We have always wanted to contribute to community projects for sustainable agriculture in Romania. We hope to expand this project not only in Romania but also to other parts of the world, so that with the help of Japanese Koshin technology and research conducted by our partners over more than 50 years, we can significantly reduce the amount of chemical fertilizers, replacing them with nutrient-rich organic fertilizers,” stated Casiana Fometescu, founder and CEO of Carbon Expert.

With over 15 years of experience in the carbon market, Carbon Expert is currently running more than 10 projects in Romania, the USA, Germany, and Ireland for voluntary certification together with the Gold Standard certification organization in Switzerland. These voluntary CO2e emission reduction projects are unique in Europe and will pave the way for obtaining voluntary carbon credits (VER – Verified Emissions Reduction) in this region.

Carbon Expert coordinates the “energy and CO2e emissions” working group within the Circular Economy Coalition, targeting the legislative and business environments. It also coordinates the process of obtaining carbon credits for various projects in plastic, aluminum, and glass recycling, energy efficiency projects, and biocompost or biofuel production.

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