ETS2

The End of Business as Usual for Logistics and Transport

In a time of increasing awareness of climate change and the need for sustainability, the transport sector is facing significant changes. The European Union's new emissions trading system, ETS2, which comes into effect in 2027, will revolutionize the way logistics and transportation are managed. Below is an in-depth look at how this new policy will impact the industry and what it means for stakeholders in the field.

ETS2: The End of Business as Usual for Logistics and Transport

ETS2: The End of Business as Usual for Logistics and Transport

The European Union’s Emissions Trading System 2 (ETS2), launching in 2027, represents a significant development for the logistics sector. This expansion of carbon pricing will specifically target road transport, buildings, and smaller industries. Building on the success of the original ETS, introduced in 2005 as the world’s first major carbon market, ETS2 aims to accelerate emissions reductions within the transport sector, often considered the problem child of Europe’s climate efforts. Given that transport in Europe is decarbonizing three times slower than the rest of the economy and is projected to make up half of the emissions by 2030, addressing these emissions is crucial for achieving broader climate goals. [https://www.transportenvironment.org/articles/europes-transport-sector-set-to-make-up-almost-half-of-the-continents-emissions-in-2030]1

ETS2 is a cap-and-trade framework that limits the amount of CO2e that the European Union as such is allowed to emit (the “cap”). Since the emission allowances are limited, this will create a marketplace that industry players with a need for emissions can source (the “trade”). The amount of emission allowances will decrease over time, aligning ETS2 with the EU’s climate neutrality goals for 2050.

While ETS2 places its obligations on fuel providers, it is expected that the fuel providers will forward a large degree of the cost of acquiring the emission allowances to their customers, ultimately affecting the transport buyers. Although the carbon price for ETS2 emission allowances is hard to predict, several studies show that three digits CO2e pricing (100 EUR/ tonne) by 2030 is likely¹. Considering a price of 140 EUR/ tonne CO2e, the diesel price would increase by 22,6%². Given that fuel costs often constitute 30% of road freight expenses, ETS2 will have a substantial impact on the logistics industry.

In 2025, the EU will begin laying the groundwork for implementing ETS2 by defining requirements and establishing monitoring plans. These initial steps will focus on internal administrative processes. Businesses will become involved in 2026, when annual emission reporting requirements are introduced. The system is scheduled to become fully operational in 2027.

The introduction of ETS2 will undoubtedly have a significant impact on the logistics sector.

For transport buyers, this means it will be crucial to:

Accurately measureyour CO2e emissions
Develop and evaluate CO2e reducing solutions
Implement solutions to reduce CO2e emissions

This coming article series will delve into these critical areas, offering insights and strategies to navigate the evolving landscape of Logistics within Europe.

Sources:

1: Supply and demand in the ETS 2 Assessment of the new EU ETS for road transport, buildings and other sectors, German Environment Agency 09/2024.

2: LOTS model based on current Diesel price 1,631 EUR, Diesel Emission factor EU 2018/ 2066 Annex VI, Diesel Energy Content GLEC 3.1 & 100% forwarding of cost to fuel buyer.