Carbon pricing in road transport sector from 2027

On Saturday night, December 18 2022, Parliament and Council reached a provisional agreement, Social Climate Fund (SCF) to benefit vulnerable households, micro-enterprises and transport users that are particularly affected by energy and transport poverty.

Following marathon negotiations, EU legislators agreed to start pricing the carbon emissions stemming from burning fossil fuels in road transport and heating in 2027, with a price ceiling of €45 per ton of carbon emitted that will apply until 2030.

An agreement reached to set up a new fund to help vulnerable citizens most affected by energy and transport poverty.

Under the compromise reached between the Council and Parliament on revamping the ETS (Emissions Trading Scheme), a parallel ETS2 system for road transport and heating will take force from 2027 — or one year later if natural gas prices surge above €106 per megawatt hour on the benchmark TTF hub. This was arguably the most controversial issue in the negotiation to reform the EU’s Emissions Trading Scheme (ETS), the biggest carbon market in the world and the bloc’s flagship climate policy instrument.

The CO2 charges will be levied through oil suppliers, which means drivers and transport undertakings can expect higher prices at the pump: Belgian industry group TLV estimates that will translate into an ETS cost of 12 cents per liter of diesel.

At Parliament’s request, the SCF will start in 2026, one year before the Emissions Trading System (ETS) is extended to cover buildings and road transport (the so-called “ETS II”). If energy prices are exceptionally high, the ETS extension may be postponed by one year.

In the beginning, the fund will be financed through the revenues obtained from auctioning 50 million ETS allowances (estimated at around €4 billion). Once the ETS extension enters into force, the SCF will be funded from auctioning ETS II allowances up to an amount of €65 billion, with an additional 25% covered by national resources (amounting to an estimated total of €86,7 billion).

Industry groups also fear the ETS charges could come on top of other costs — for instance due to the reformed Eurovignette rules on road charging. You’ll recall that the Eurovignette deal included a clause asking the Commission to revisit the legislation if any other carbon pricing instrument risked leading to double charging.

With the ongoing energy crisis, the new scheme could be delayed by a year, until 2028, if energy prices remain “exceptionally high” , The parliament said in a statement :  Deal on establishing the Social Climate Fund to support the energy transition | News | European Parliament (europa.eu)