EU Carbon Market Will Cause Diesel Prices To Soar

How EU's Carbon Market Growth Is Affecting Diesel Prices - Carbon Herald
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As the European Union (EU) works towards reducing its carbon footprint, the transportation sector, particularly diesel vehicles, has felt the effects of the Union’s newest carbon regulations

In 2022, the EU agreed to establish a second emissions trading system (ETS2) for the transportation and housing sectors as part of a comprehensive set of reforms designed to reduce EU greenhouse gas emissions by 55 percent by 2030. 

According to a report in the Financial Times a similar to the original cap-and-trade ETS covering power producers and heavy industry, ETS2 will function in the same manner. However, unlike before, no complimentary allowances for carbon emissions will be distributed.

Relevant: EU Council And Parliament Reach Agreement On The Carbon Removal Certification Framework

Starting in 2027, fuel providers will need to purchase emissions allowances to offset their carbon dioxide output. This additional cost is expected to have a significant impact on diesel prices in the region, potentially leading to higher costs for consumers at the pump. 

A portion of the proceeds from the program will be directed towards a “social climate fund” to aid low-income households and small businesses in covering the costs of insulation, energy efficiency, or transitioning to decarbonized transportation. 

According to a recent analysis conducted by carbon market data company Veyt, this program will increase the cost of diesel by 14 cents per liter in 2027, eventually rising to 54 cents per liter by 2031 as additional regulations are implemented. This has raised concerns among industry stakeholders about the financial implications of these carbon pricing policies and how they will affect the overall economy.

Read more: EU Parliament Announces Reform Of Gas, Hydrogen Market Governance

Experts seem to have differing opinions on the subject. Peter Liese, a German politician who was involved in the negotiations for ETS2, has stated that attempting to decarbonize without the ETS would be significantly more costly and bureaucratic for EU member states.

However, Pascal Canfin, the French leader of the European Parliament‘s environment committee, cautioned that if the carbon price were to increase excessively, it would be deemed unacceptable for all Europeans.

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