Car owners set to face tight market and high prices in ETS 2

With CO2 output from cars and other vehicles barely down after peaking in 2007 road transport is Europe’s second largest emission sector, after power and ahead of industry.

For Europe to reach its 2030 target of reducing emissions across all sectors by at least 55%, the road transport and heating sectors must reduce at least 40% compared to 2005 levels. In 2022, they were down only 4%. A scenario based on member states implementing additional decarbonisation measures (beyond existing) suggests road emissions will be down 26% in 2030. The sluggish decrease so far explains why fuels sold for road transport are now becoming subject to carbon pricing in the new ETS 2.

Further out towards 2040 road emissions will need to drop much more to contribute to the proposed 90% reduction target. ETS2 emissions will need to fall rapidly from around 1,100 Mt in 2027 to around 200 Mt in 2040. This will require a massive electrification of the transport sector, yet the current trend for the uptake of EVs is not very encouraging.

Veyt expects a wide gap between a high level of residual emissions and a limited volume of available ETS 2 emission allowances. This will be reflected in strong demand, and we expect prices to exceed EUR 200/t in 2031. For diesel at the pump, that might translate into a 50 cent per litre addition to the price.