What European leaders have decided regarding the emissions trading market

During the night between Thursday and Friday, the heads of state and government of the European Union member states, meeting in Brussels for the European Council, reached an agreement on the energy chapter, which had divided them throughout the day. The conclusions, adopted after a lengthy standoff, call on the European Commission to update its assessment of all the impacts of ETS2, particularly with regard to its structure and safeguard measures. It is a compromise between two groups of countries: on the one hand, Italy and the Visegrád Group countries; on the other, the Nordic countries.

The ETS (Emissions Trading System) is the system through which the EU sets a price on carbon dioxide emissions. Companies in certain sectors must purchase allowances for every tonne of CO₂ they emit, and the price of these allowances is determined by the market: the idea is to make it more cost-effective to pollute less. The existing ETS covers industrial plants and power stations. ETS2 extends the same principle to fuels used in transport and in buildings, namely petrol, diesel and heating gas. It will come into force in 2028, and this is what worries some governments the most: unlike the first scheme, its costs are likely to fall directly on households and motorists.

The row stemmed from the high energy prices of recent weeks. Alongside Hungary, Poland, the Czech Republic and Slovakia, as well as Greece and Cyprus, Italy was calling for changes to the system. According to Il Foglio’s account, the group aimed to postpone the entry into force of ETS2 from 2028 to 2030 and to introduce an assessment of the impact the ETS has had on European industry to date. Other accounts describe a more cautious stance: Italy did not wish to postpone ETS2 any further, knowing that it would lose that battle. Instead, the government was looking for a temporary ‘national exemption’, modelled on the one granted to Spain and Portugal in 2023 to keep electricity prices in check.

Meanwhile, the prime ministers of Finland, Denmark and Sweden – Petteri Orpo, Mette Frederiksen and Ulf Kristersson – had written to the President of the European Council, António Costa, to oppose any weakening of the system. In their view, tampering with the ETS would have undermined the predictability on which investment decisions depend, and would have slowed down the decarbonisation of industry.

The final text attempts to reconcile the two positions. In point 11 of the conclusions, the European Council reiterates the need to urgently ensure a well-functioning, transparent and predictable carbon market, to protect it from carbon leakage, to reduce price volatility and to mitigate its impact on electricity prices. The specific reference to ETS2 was included at the request of Italy and the Visegrád countries, but without an explicit reference to the postponement. At the same time, the text reaffirms the essential role of the ETS.

In practice, Italy has secured a commitment from the Commission to re-examine the impact of ETS2, but not a postponement of its entry into force: the timetable remains as planned. The Commission must now present the new assessment, and any changes to the system will have to go through the normal European legislative process.

The first day of the summit, however, ended without an agreement on the EU’s next multiannual budget, covering the period 2028–2034, and negotiations have been postponed until November. In their conclusions, the leaders did not commit to reaching an agreement by December, merely acknowledging that an agreement by 2026 would allow the necessary legislation to be approved in 2027 to ensure funding from the start of 2028. Meloni’s call for greater flexibility on public finances also remains unresolved, having received explicit support only from Greece. The European Council continues today to finalise discussions on Ukraine, defence and flexibility, with Meloni’s closing press conference. The first face-to-face meeting between Zelensky and the Hungarian Prime Minister Magyar is today’s top European political story: it marks the end of Orbán’s era of vetoes on Kyiv.