EU carbon market

expansion to raise diesel

prices
Motorists set to pay an extra 50 cents a
litre from 2031, estimates show

Under ETS2 fuel suppliers will be required to buy allowances from 2027 to cover their
carbon dioxide emissions and are expected to pass that cost to consumers © Angel
Garcia/Bloomberg

EU motorists are set to pay at least an extra 50 cents a

litre on diesel from 2031 to cover carbon costs, according
to new analysis which raises fears of fresh protests
against climate laws.

Fuel suppliers will be required to buy allowances from

2027 to cover their carbon dioxide emissions and are
expected to pass that cost to consumers.

Veyt, a carbon market analytics firm, expects the scheme

will add 14 cents to a litre of diesel in 2027, with the
premium reaching 54 cents per litre in 2031 as more
measures are phased in.

Emissions from fuel for heating buildings will also need to

be paid for, pushing prices of coal up 68 cents per kg by
2031, Veyt found.

The EU in 2022 agreed to set up a second emissions

trading system (ETS2) to cover transport and housing as
part of an ambitious set of reforms aimed at cutting EU
greenhouse gas emissions by 55 per cent by 2030. It will
operate in the same way as the bloc’s original cap-and-
trade ETS which covers emissions from power generators
and heavy industry.

Under ETS2 no free allowances to cover carbon emissions

will be issued. A part of the revenues generated by the
levy, however, will be funnelled into a “social climate fund”
to help lower-income households and small businesses
cover the cost of insulation, energy efficiency or
decarbonised transport.

The fund, which promotes the use of less carbon-

intensive fuels, also seeks to prevent a repeat of the so-
called gilets jaunes protests in France in 2018 partly
prompted by an increase in national taxes on diesel aimed
at bringing down the country’s CO₂ emissions.
Rising fuel costs were also a driver for farmers’ protests
across the EU earlier this year.

“I think it has been a very political choice to set up this

fund,” said Marcus Ferdinand, chief analytics officer of
Veyt.

He believes the scheme will be effective, triggering a

“sizeable wave of emissions abatement equivalent to
about 400Mt over all covered sectors by 2040”, with road
transport most affected.

Peter Liese, a centre-right German lawmaker who

negotiated the ETS2 measure, said there was “no
alternative” to carbon pricing for cutting emissions
“unless you want to torture people with detailed
decisions”. He cited a poorly communicated decision by
the German government to phase out gas boilers that
prompted a strong backlash.

“If [EU] member states try to decarbonise without the ETS

it will be much more expensive and much more
bureaucratic,” he added.

But Pascal Canfin, French chair of the European

parliament’s environment committee, warned that if the
carbon price went too high “it would obviously be
unacceptable to all Europeans”.

Johan Mattart, head of the Belgian Federation of Fuel

Distributors, said companies had received letters in recent
weeks from regional authorities about their obligations
under the scheme, but there was confusion over who
would be covered by it and how to prepare for monitoring.

The fuel distributors group is pushing for the use of hybrid

heating fuel containing vegetable oil, to cut emissions and
lower costs for consumers.

“The aim of the directive is of course to reduce CO₂

emissions, but I am afraid not all households can afford a
heat pump and not all houses are suited for this,” said
Mattart. He added that governments were providing
incentives to people to buy electric cars, “but not
everyone can afford one”.