Carbon prices on the rise? Shedding light on the emerging second EU Emissions Trading System (EU ETS 2)

As of 2027, the EU will implement a second Emission Trading System (EU ETS 2) to cap emissions in buildings, road transport and small industries not covered by the already existing European Emissions Trading System. Substantial uncertainty remains regarding potential price trajectories and their underlying drivers. In light of this, we explore EU ETS 2 price paths using the energy system model PRIMES. We focus on the effect of complementary efficiency policies (EPs), as earlier research suggests they could have a profound impact. Indeed, analyzing three scenarios with different EPs stringency, we find that they make EU ETS 2 prices vary between 71 EUR/tCO2 and 261 EUR/tCO2 in 2030. Despite different instruments driving emission abatement, comparable emission reductions at the EU level (−41%) are achieved in all three scenarios. Energy efficiency policies at both EU and national levels are expected to significantly impact EU ETS 2 price levelsThe more stringent energy efficiency policies are, the lower the EU ETS 2 priceModeled EU ETS 2 prices lie in the range of 71–261 EUR/tCO2, depending on the stringency of complementary energy efficiency policies assumed in scenariosFundamentally modeled EU ETS 2 prices point to the possibility of price stability mechanisms of EU ETS 2 being triggered Energy efficiency policies at both EU and national levels are expected to significantly impact EU ETS 2 price levels The more stringent energy efficiency policies are, the lower the EU ETS 2 price Modeled EU ETS 2 prices lie in the range of 71–261 EUR/tCO2, depending on the stringency of complementary energy efficiency policies assumed in scenarios Fundamentally modeled EU ETS 2 prices point to the possibility of price stability mechanisms of EU ETS 2 being triggered