Price increase for fossil fuels from 2027

💡 What is the EU ETS?

The EU Emissions Trading System (EU ETS) is a market-based instrument for reducing emissions in the most cost-efficient way and the leading instrument in the EU. It functions like this: an absolute quantity of CO₂ certificates (pollution rights) is issued annually by the member states by auction (or direct allocation) and companies must pay for their emissions - from the combustion of coal, oil and gas or industrial processes - by purchasing the corresponding quantity of CO₂ certificates at the auction or from other market participants. The price depends on supply and demand.

The resulting rising costs are passed on along the supply chain so that, for example, fossil-based electricity becomes more expensive for all consumers (companies and end consumers). It is a cap (upper limit) and trade system with a yearly reduction of the cap. This means that the absolute amount emitted can be controlled over time so that we stay within the remaining CO₂ budget for the "well below 2°C" limit. If the instrument is well designed and consistently implemented (particularly with regard to the annual reduction in certificates issued and the inclusion of all sectors), it is very effective. However, it is by far not yet Paris-compliant. Continuous optimization of the system is therefore important for more steering effect and compliance with remaining CO₂ budgets.

🚨 Major CO₂ price increase possible from 2027: why SMEs should act now

The EU ETS currently obliges companies in the energy and industry as well as aviation and maritime sectors to hold CO₂ certificates in line with their annual GHG emissions. From 2027, a second emissions trading scheme will be applied to the buildings and transport sectors (ETS II). This will then replace the current national emissions trading system (nEHS) in Germany, which has so far functioned as a CO₂ tax with a fixed price development.[1] From 2027, the price will then be set freely on the market. Analyses expect that the CO₂ price for fuels will rise significantly due to the strict European emissions caps and, in some cases, little progress in decarbonization in Europe.

The current (2025) price is 55 €/t CO₂ (nEHS). In 2027 - under ETS II - it could be 143 €/t on average, with an estimated range of 100-250 €/t. In 2030, the price could be 189 €/t.[2][3] The increased prices will be directly reflected in the fossil fuels and combustibles purchased, as they will be passed on to consumers by the distributors who have to purchase the certificates. The increase may also be felt in many products and services, as some of the cost increases will have to be passed on to customers. Companies, especially the more energy-intensive ones, should prepare for this likely significant price increase and take initial measures in advance if possible.

How much you as a company end up paying depends on your engagement and that of the entire economy beforehand:

1. You take decarbonization measures. Less fossil fuels, less emissions, less CO₂ costs. For the remaining fuels you need to pay the rising CO₂ prices.
2. If you have decarbonized little by 2027 you have a lot of fossil fuel purchases and according higher CO₂ costs. Additionally, if other companies are also on a low-decarbonization-track, then the demand for CO₂ certificates is high, so the certificates cap may not be sufficient and penalties may have to be paid; which should be higher than the CO₂ price and would be paid by the distributors passing them on in the supply chain.

🔎 Sample calculation

Company with 100 employees. Assumption of annual CO₂ emissions from diesel, gas & heating oil: approx. 700 t CO₂ (e.g. equivalent to 230,000 l diesel and 330,000 kWh gas).

💶 CO₂ cost development with business as usual

2025: 700 t CO₂ * 55 €/t = 38,500 €

2027: 700 t CO₂ * 143 €/t = 101,100 €

2030: 700 t CO₂ * 189 €/t = 132,300 €

Possible increase 2025 → 2027: +61,600 € (+260 %)

Possible increase2025 → 2030: +93,800 € (+344 %)

⚙️ Scenario with countermeasures

With a targeted decarbonization strategy - e.g. switching to e-mobility (first major steps), bio-gas, heat pumps, other efficiency measures - CO₂ emissions can be reduced by around 40% in the short term. This results in emissions from purchased fuels of 420 t CO₂ for our sample company.

2025: 420 t CO₂ * 55 €/t = 23,100 €

2027: 420 t CO₂ * 143 €/t = 60,060 €

2030: 420 t CO₂ * 189 €/t = 79,380 €

➡️ Savings 2027: 100,100 - 60,060 = 40,040 € p.a.

➡️ Savings 2030: 132,300 - 79,380 = 52,920 € p.a.

With 100 employees and rather high fossil energy consumption, CO₂ costs from fossil fuels will increase significantly from 2027 - from around €38,500 today to over 100.000 €. However, with a 40% reduction in emissions you can save more than 40,000 € per year from 2027 (operational expenditure).

Of course it is important for the full economic picture to include the initial decarbonization investments (capital expenditure). But with green technologies becoming cheaper - e.g. the purchase prices of electric cars are just about to break-even with combustion engine cars - and with a holistic measure concept instead of isolated consideration, a quick amortization is possible.

Conclusion

Those who take measures before ETS II comes into force can realize cost savings and increase their competitiveness. In addition, companies will become less dependent on geopolitical volatility in global energy supply chains and thus strengthen their resilience. A good opportunity to get started with CO₂ transparency/climate accounting and decarbonization.

We are happy to support you in quickly identifying the emission drivers and defining suitable alternative concepts.

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Sources:

[1] Emissionshandel - MappingZero

[2] Analysts expect EU carbon prices to soar by 2027

[3] Emissionshandel: Was über die zukünftige Entwicklung der CO2-Preise bekannt ist