ETS2 – the new emissions trading system. Who will it apply to and when will it become effective?

ETS2 is based on the “cap and trade” principle, under which a limited number of emission allowances are made available and can be traded on the market. Entities covered by ETS2 will be required to surrender a corresponding number of allowances reflecting emissions associated with the fuels covered by the system. 

ETS2 will apply to specific entities responsible for releasing fuels for consumption. The mere use of fuel does not determine whether an entity is subject to regulatory obligations. However, the economic impact of the system may also affect entities that are not formally covered by ETS2. 

ETS1 is an installation-based system covering primarily the energy sector, industry, aviation and maritime transport. ETS2, in contrast, has been designed as a fuel-based system and will cover fuels used, among others, in road transport, buildings and additional sectors. As a result, regulatory obligations under ETS1 are linked to the operation of installations, whereas under ETS2 they will be linked to the release of fuels for consumption. 

The nature of the emissions covered by each system also differs. ETS1 focuses on large, identifiable sources of emissions, whereas ETS2 covers dispersed emissions arising from the day-to-day use of fuels by a broad range of end users. 

ETS2 was established as part of the “Fit for 55” package and introduced by Directive 2023/959 of the European Parliament and of the Council of 10 May 2023 amending Directive 2003/87/EC. 

Under the current timetable, ETS2 is expected to become operational from 2028.