EU delays emissions trading expansion to 2028 amid industry concerns and social safeguards

European lawmakers have agreed to postpone until 2028 the application of the European Union’s carbon pricing on buildings and road transport , the so‑called ETS2 , one year later than the European Commission had proposed, marking a notable recalibration in the EU’s approach to extending its emissions trading system beyond industry and power generation.

According to the original report, the delay leaves in place the Commission’s timetable for monitoring, reporting and verification, which began in 2025, but pushes back the point at which ETS2 will start to set a price signal on fossil‑fuel heating and petrol and diesel used in road transport. Under the new arrangement, fuel suppliers, rather than end consumers such as households or car users, will be required to monitor and report emissions.

The Commission argues that carbon prices within the EU ETS will drive investments in building renovations and low‑emissions mobility. EU Climate Action Commissioner Wopke Hoekstra said the new law should be introduced “gradually and smoothly” to avoid pressure on low‑income households. “We are also exploring the possibility for member states to frontload carbon revenues from buildings and road transport, in cooperation with the European Investment Bank, to support low‑ and middle‑income households in reducing their heating or mobility bills early on,” he added. The Dutch Commissioner also said that the revenue generated through carbon pricing and channelled via the Social Climate Fund will help tackle energy and transport poverty and deploy clean technologies. “The transition needs to be just and fair, whereby especially vulnerable households, small companies and regions that are most exposed to structural changes are protected and supported,” added Hoekstra.

Opponents warn the measure will translate into higher energy bills. Researchers at Delft University of Technology analysed the prospective effects and estimated ETS2 could push tens of thousands more households into energy poverty by 2030 if mitigating measures are not deployed. Sven Harmeling, head of climate at Climate Action Network Europe, regretted the delay to ETS2 saying it is a missed opportunity for member states to improve public transport, renovate homes and public buildings, and invest in renewables to reduce energy prices. “Member states need to ensure a timely, fair and effective entry into force of ETS2 and secure the strong protection and enhancement of the role of the Social Climate Fund,” he said.

The decision comes alongside agreement on an intensified EU target to cut greenhouse‑gas emissions by 90% from 1990 levels by 2040. Industry faces a binding mandate to achieve roughly an 85% reduction within the EU, with provisions allowing up to 5% of the bloc’s reduction target to be met via international carbon credits from 2036 onwards, and a potential pilot period between 2031 and 2035 to test mechanisms. The EU Parliament had earlier backed the 2040 target with the 5% offsets provision; the Council and lawmakers retained the 2036 start date while allowing the pilot window.

Industry representatives and some member states pressed for greater flexibility on offsets; Finland, Germany, the Netherlands, Portugal, Slovenia, Spain and Sweden reportedly sought to keep the threshold at 3%, while France and Italy argued for 5% and Poland pushed for 10%. Proponents say international credits can ease the transition where domestic abatement is costly or slow; critics and some scientists argue offsets risk diluting domestic emissions action and complicating the bloc’s pathways to meet the 1.5°C goal.

Beyond ETS2 and offsets, the EU’s broader carbon policy package is exerting immediate pressure on trade and heavy industry. The Carbon Border Adjustment Mechanism (CBAM) moves into a more binding phase from January 2026 and is expected to raise import costs for emissions‑intensive goods such as steel, cement and fertilisers. Industry analysts and company executives warn this could reshape supply chains: Reuters reporting indicates India’s steel exports to Europe are poised to decline once CBAM is applied, while Constellium’s CEO Jean‑Marc Germain has argued that CBAM risks a slow demise of Europe’s aluminium industry by inflating costs and undermining competitiveness.

Policy timing and sequencing are proving contentious. A draft Commission agenda flagged a delay to legal proposals on expanding CBAM and a potential softening of the EU’s 2035 ban on sales of new CO2‑emitting passenger cars, reflecting pressure from automotive industry stakeholders and governments. Those moves underline the political trade‑offs between rapid decarbonisation and the competitiveness and social impacts of transition policies.

For businesses engaged in industrial decarbonisation, the compromise sends mixed signals. On one hand, postponing ETS2’s price impact until 2028 gives firms and households additional time to prepare and for member states to design compensatory measures financed via the Social Climate Fund or domestic revenues. On the other, the simultaneous sharpening of the 2040 target and the CBAM timetable tightens medium‑term obligations: companies in energy‑intensive sectors face rising compliance costs and evolving border measures while policymakers retain discretion over the scale and timing of offsets.

Industry data shows the current ETS covers roughly 40% of EU emissions from energy and heat generation and energy‑intensive industries; with aviation and maritime transport included in 2024, the Commission estimates the new, fully enacted ETS framework could extend coverage to about 75% of emissions across the EU. For corporate decarbonisation strategists, this broadened scope , combined with potential access to international credits and the reallocation of revenues via EU funds , will require integrated planning across procurement, product design, market access and social risk mitigation.

The political compromise underscores two central tensions: how to preserve competitiveness and industrial capacity while accelerating emissions cuts, and how to deploy revenue and policy design to prevent worsening energy and transport poverty. Member states now face the task of converting the EU’s legislative architecture into national measures that protect vulnerable households and support investments in renovation, electrification and low‑emission mobility , choices that will determine whether the expanded carbon market becomes an engine for managed industrial decarbonisation or a source of social and industrial strain.