ETS2 - Road Transport Overview

Europe’s Road Transport Faces a Carbon Market Shake-Up

The European Union is on the cusp of a landmark shift in climate regulation.

Originally slated for 2027 but now delayed to 2028, carbon emissions from road transport will be covered by a new Emissions Trading System (ETS2).

This expansion effectively puts a price on every tonne of CO₂ from gasoline, diesel, and other transport fuels, fundamentally altering cost structures and decision-making across the road transport sector.

From private motorists to freight haulers and public transit agencies, businesses are bracing for ETS2’s ripple effects on fuel prices, investment strategies, and competitive dynamics.

ETS2 is not just another compliance hurdle, but a transformative market development that will reshape Europe’s road transport landscape over the next decade.

If you're organisation will be heavily impacted by ETS2, it's critical to align your carbon allowance purchase strategy as soon as possible. 

Prices will rise as the deadline to comply approaches, so securing your compliance early will ensure your commercial operations are impacted at a minimum. 

Get in touch with our award-winning carbon compliance team, here.

A New Carbon Market for Road Transport

Under ETS2, fuel suppliers become the regulated entities responsible for the emissions of the fuels they sell.

In practice, this means oil refiners, fuel importers, and distributors must purchase and surrender emission allowances for the CO₂ content of gasoline, diesel, and other road transport fuels.

All allowances are auctioned (no free allocation), and the total cap on emissions will tighten annually to achieve a 42% reduction in transport and building emissions by 2030 (vs 2005 levels).

The system’s design mirrors the EU’s existing ETS for power and industry, but with an upstream approach, targeting fuel suppliers rather than individual drivers or vehicle owners.

If you're a fuel supplier and required to tax your commodities in accordance with the European Energy Tax Directive (ETD/ED) or an entity in your supply chain matching this definition, Then the ETS2 will affect you.

Fuels

• Diesel

• Petrol

• Gasoil

• Fuel Oil

• Kerosene

• LPG

• Natural Gas

• Coal

• Coke

• Biofuels of fossil fraction

• Naphtha, Peat, and Lignite

Timeline and scope

ETS2 is slated to become fully operational in January 2028, following a delay from 2027.

The monitoring phase (MRV) has already begun.

EU legislators built in a contingency to delay the start to 2028 if energy prices in 2026 are exceptionally high, a safeguard to avoid overburdening consumers during an energy crisis.

Once live, ETS2 will cover all road transport fuel emissions, effectively doubling the share of EU emissions under carbon trading.

If they use traditional fuels, private cars, commercial trucks, vans, buses will see their emissions fall under the cap.

This broad scope complements other EU Green Deal measures (like vehicle CO₂ standards and the 2035 phase-out of new combustion car sales) by leveraging market forces to drive down transport emissions.

Carbon cost pass-through

Crucially, the obligation on fuel suppliers will filter down to end-users via fuel prices.

When a diesel distributor must pay, say, €60 for each tonne of CO₂ in their product, that cost will be embedded in the price per litre at the pump.

Analysts estimate ETS2 could add roughly €0.10–€0.12 per litre of diesel by 2030, a material increase, especially for high-mileage operations.

To prevent runaway prices in the early years, the EU has set a temporary price cap.

If allowance prices surge above ~€45/ton, approximately €59 in 2027/2028, the market’s stability reserve will release extra allowances to dampen the price.

This effectively caps carbon costs during 2027–2030, providing a smoother ramp-up.

Nonetheless, the cap itself may be revisited as climate targets tighten; ETS2’s allowances are expected to become scarcer (and thus pricier) beyond 2030 as the EU drives toward net-zero.

This may drive the adoption of electric vehicles further, as other regulations to phase out diesel and traditionally-fuelled vehicles coalesce drivers towards updating their transport.

Key Impacts on the Road Transport Sector

ETS2’s introduction will reverberate across business models and supply chains in road transport.

Some of the key impacts and changes industry players can expect include the following.

Carbon Pricing Pressure

Every gallon of fuel will carry an explicit CO₂ price...

This carbon cost is projected to increase fuel expenses substantially, potentially by up to one-third, on average in the late 2020s, if no mitigating measures are taken.

Bloomberg has already created a number of pricing models, here.

Even under a more moderated scenario with price containment, fuel suppliers are likely to pass most of the allowance cost to consumers, squeezing margins for transport-intensive businesses.

Analysts calculate that at a €59/tCO₂ carbon price, an average household with a gasoline car would pay an extra €115–€154 per year in fuel costs.

Multiply such increases across commercial fleets and you get significant new operating costs for logistics and transit firms.

Compliance Obligations for Fuel Suppliers

Oil companies and fuel distributors become the frontline for ETS2 compliance.

These firms must track and report the emissions of fuels sold, purchase enough allowances at auction or on the market, and surrender them annually to cover those emissions.

Compliance teams will need robust carbon accounting systems and strategies to manage this new liability.

Many are already gearing up, for instance, early auctions of ETS2 allowances are planned in 2026 to help suppliers start hedging costs ahead of the 2027 launch.

Fuel suppliers will face choices about absorbing vs. passing on carbon costs and whether to invest in cleaner fuel alternatives to reduce their allowance needs.

Market Dynamics & Price Volatility

As a brand-new carbon market, ETS2 may see significant price volatility in its initial years.

Policymakers are balancing climate ambition with affordability, but uncertainties in supply-demand (e.g. weather-driven fuel use, economic swings) could cause swings in allowance prices.

Indeed, 16 EU member states have already warned of the risk of “excessive carbon prices” in ETS2, fearing public backlash.

The European Commission’s own reference scenario envisioned a carbon price around €58/t this decade, but without additional measures the “base case” could reach ~€99/t on average (and €122 by 2030) according to BloombergNEF – the highest carbon price globally.

Such levels would deliver deeper emission cuts but at the expense of sharply higher fuel costs.

To prevent this, regulators are introducing market stability mechanisms (e.g. more dynamic allowance supply adjustments and a “soft” price ceiling)

Even so, businesses should be prepared for carbon price fluctuation as the market finds its footing.

Hedging and Trading Opportunities

The flipside of volatility is a new carbon trading arena ripe for risk management and arbitrage.

Companies exposed to fuel prices, from trucking firms to airlines buying road fuel for ground ops, can hedge future carbon costs via ETS2 futures and forward contracts.

In fact, the market’s development is already underway.

In August 2025, CFP Energy and Macquarie executed the first-ever EU ETS2 futures trade on the EEX exchange.

This early deal (for a December 2028 vintage) gives a glimpse of a future where businesses lock in carbon prices years in advance, much like they do for diesel or jet fuel.

We can expect a growing suite of financial instruments (futures, options, swaps) tied to ETS2 allowances, enabling sophisticated players to manage carbon price risk or speculate on price movements.

CFP Energy are positioning as key facilitators in this space, leveraging their carbon market expertise to broker deals and provide liquidity from day one.

Demand Signals for Decarbonisation

By attaching a cost to emissions, ETS2 will send powerful demand signals favouring low-carbon alternatives.

Diesel and gasoline will become comparatively more expensive, improving the business case for electric vehicles (EVs), hydrogen fuel-cell trucks, and advanced biofuels.

Fleet operators are expected to accelerate plans to electrify delivery vans, deploy electric or biogas trucks, and adopt renewable fuels where possible.

For instance, hydrotreated vegetable oil (HVO), a drop-in bio-diesel substitute, can cut lifecycle CO₂ emissions by up to 90%, dramatically reducing a fleet’s exposure to carbon costs.

Many firms on tight margins (e.g. road freight hauliers) will face pressure from their own clients to shrink their carbon footprint.

Logistics contracts may start requiring proof of emissions reduction as part of Scope 3 supply-chain targets.

In turn, this could steer transport purchasing toward low-emission carriers and spur investments in efficiency (route optimisation, truck aerodynamics, driver training) to lower fuel burn.

As previously mentioned, in personal mobility, higher petrol prices may nudge consumers further toward EVs or public transit, especially as total cost of ownership tilts in favour of electric cars when carbon and fuel savings are factored in.

Infrastructure Investment Implications

To support the shift away from fossil fuels, significant infrastructure investment will be needed.

A portion of ETS2 revenues will flow into the EU’s Social Climate Fund earmarked for clean transport and energy projects, helping fund EV charging stations, electric bus fleets, and building retrofitsc.

At the same time, separate EU regulations are mandating the build-out of alternative fuel infrastructure.

Under the new Alternative Fuels Infrastructure Regulation (AFIR), for example, by 2030 there must be public electric charging stations for heavy-duty trucks every 120 km on main highways, and hydrogen refueling stations every 200 km.

These targets, backed by public subsidies, are catalysing private investment in charging networks and hydrogen fuel logistics.

Over the next 5–10 years, we’ll see an expansion of fast-charging depots, overhead electrified truck lanes (in some pilot regions), and possibly hydrogen hubs, all aimed at making zero-emission road transport viable at scale.

Fuel suppliers themselves are diversifying and many oil & gas companies in Europe are investing in EV charging providers, biofuel production, and even green hydrogen, anticipating a future where their traditional diesel sales volume declines.

In short, ETS2 strengthens the economic case for low-carbon transport infrastructure, and savvy investors are moving in tandem with this policy signal.

Impact Across All Road Transport Modes

Every segment of road transport will feel the effects of ETS2’s carbon pricing, though the challenges and strategies differ.

Private Vehicle Owners

For individual motorists and corporate fleets running passenger cars, higher fuel prices are the most immediate impact.

By design, ETS2 motivates consumers to consider lower-emission travel options. Small price signals can influence choices like carpooling, switching to an electric car, or using public transit.

While an extra €100–€200 a year in fuel costs (as estimated for average drivers under ETS2abnamro.com) may not drastically change behavior overnight, it reinforces broader trends.

Auto manufacturers anticipate that demand for electric vehicles will continue to surge, aided by the combination of carbon-priced fuel, purchase incentives, and tightening EU emissions standards.

By the early 2030s, the total cost of owning and operating an EV is expected to undercut conventional cars in most EU countries, even without subsidies, partly thanks to avoided fuel carbon costs.

Additionally, ride-hailing and corporate car services might begin marketing “carbon-neutral mobility” options, using EV fleets or offset schemes to attract climate-conscious clients in a carbon-priced world.

Commercial Freight and Logistics

The road freight sector faces perhaps the greatest adjustments.

Fuel can account for 20–30% of operating costs for trucking companies, so a significant rise in diesel prices directly hits their bottom line.

Hauliers will have limited ability to absorb these costs given typically thin margins; most will need to pass costs through to shippers, causing a knock-on increase in goods prices (from supermarket products to raw materials).

However, competitive pressures mean logistics firms that can reduce their carbon costs will gain an edge.

We’re likely to see fleet upgrades accelerated e.g. swapping older, less efficient trucks for new Euro VI or electric models, and greater use of alternative fuels such as HVO, biodiesel, renewable natural gas (biomethane), or even early hydrogen trucks for pilot routes.

Some large retailers and manufacturers (the customers of freight companies) have their own climate pledges and will favour transport providers with lower emissions profiles.

This means haulers can avoid facing higher costs and can discover new opportunities if they lead in decarbonising.

Efficient driving practices, fleet right-sizing, and even modal shift (to rail or waterway where feasible) are strategies that logistics managers will use to mitigate exposure to ETS2.

Over the next decade, as zero-emission truck technology matures, the freight sector is expected to progressively electrify, first urban delivery vans and regional trucks and later long-haul rigs as charging/hydrogen infrastructure becomes widespread.

Public Transit and Municipal Fleets

City buses, municipal service vehicles, and other public fleets will also come under pressure, especially where they still rely on diesel or compressed natural gas.

Many EU cities have already been transitioning to electric or hybrid buses and ETS2 adds further impetus by making traditional fuel operation more expensive.

Public transit agencies might face higher fuel bills in the short term, potentially straining budgets or transit fares, but they also stand to benefit from targeted reinvestment of ETS2 proceeds.

A portion of the Social Climate Fund can subsidise electrification of bus fleets or installation of depot chargersc, aligning with cities’ goals to cut air pollution and emissions.

We can expect that by 2030, a large share of new bus purchases in Europe will be battery-electric or hydrogen fuel cell, with ETS2 effectively serving as an extra nudge (on top of clean vehicle mandates) to make that switch financially sensible.

Other public fleets, from waste trucks to police vehicles, will likewise see total cost calculations tilt in favour of EVs.

Where immediate electrification isn’t viable, local governments might explore bulk procurement of biofuels to lower the carbon footprint of city vehicles.

In sum, ETS2 accelerates the timeline for greening public transport, with benefits not only in carbon terms but also in urban air quality and noise reduction.

Alternative Fuel Providers and Vehicle Technology

A clear winner in the ETS2 era is the alternative fuels and vehicle technology sector.

As carbon costs shift economics, we’ll see greater demand for solutions like high-blend biofuels, electric drivetrains, and hydrogen systems.

Producers of advanced biofuels (like HVO, renewable diesel, synthetic e-fuels) anticipate a surge in interest because these fuels allow companies to cut effective emissions immediately without waiting for fleet turnover.

Since HVO can be used in existing diesel engines, a trucking firm can slash its carbon allowance needs (and costs) by using, for example, a 50% HVO blend, a potentially attractive stopgap while zero-emission trucks are still emerging.

On the vehicle side, manufacturers of electric trucks and buses expect a stronger business case for their products.

When a logistics operator weighs an electric truck’s higher upfront price against a diesel truck, the calculation now should factor in the avoided ETS2 carbon cost on diesel over the truck’s lifetime.

This effectively shortens the payback period for zero-emission trucks. Meanwhile, the charging and hydrogen refueling industries will be bolstered by both regulatory support (as noted with AFIR) and growing market demand for their services.

We are likely to see innovative partnerships, e.g. fuel suppliers evolving into “energy providers” that offer not just diesel, but also EV charging, hydrogen, and biofuels to their customers.

CFP Energy is placed to assist clients in switching to cleaner fuels as part of comprehensive carbon management solutions, while also offering fleet-electrification solutions.

Volatility management

Given the likelihood of price swings, fuel distributors and large fuel buyers will need to manage carbon price risk just as they do oil price risk.

We anticipate hedging strategies becoming standard, for example, a trucking company might lock in part of its 2028 carbon expense by buying ETS2 futures now, much like airlines hedge jet fuel.

This is a new competency for many in the transport value chain and it’s driving demand for expertise.

CFP Energy is expanding environmental risk management services, offering support on carbon procurement, market intelligence, and even structured products to smooth out cost volatility.

Tim Atkinson, Head of Carbon for CFP Energy noted, "While still in its early stages, the development of this market is vital, enabling us to support fuel suppliers and end users with robust compliance and risk management strategies under this emerging scheme. This milestone represents a significant step forward for CFP Energy, building on more than 15 years of active involvement and proven expertise in the EU ETS and broader carbon markets.”

In practical terms, this could mean everything from helping a fuel wholesaler budget for carbon costs under various price scenarios, to providing a platform for industrial clients to trade excess allowances if they manage to beat their emissions targets.

Liquidity and price discovery

In the initial phases of ETS2, liquidity (the ease of buying/selling allowances) will be lower than the well-established EU ETS for industry.

Fewer participants and uncertain policy tweaks could lead to sporadic trading volumes.

However, the participation of large financial players (e.g. commodity trading desks at major banks and specialists suggests that market-making activity will grow quickly.

The fact that the first ETS2 futures deal was struck between a major bank and CFP via a broker demonstrates a maturing ecosystem.

Brokers are actively quoting prices, and buyers and sellers are finding each other even before the compliance obligation hits.

Over the next few years, we expect the ETS2 price to become a closely watched indicator for the transport and heating fuel sectors.

Companies may even start including ETS2 price assumptions in their long-term contracts (for example, haulage contracts with automatic fuel surcharge adjustments that account for carbon costs).

The development of a deep and liquid market will also allow for speculative investment and carbon funds to trade ETS2 allowances, adding participants who seek profit on price movements and thereby improving market liquidity further.

This is already a behaviour observed in existing ETS markets.

Integration with ETS1 and beyond

While ETS2 is separate from the original EU ETS (now often termed “ETS1”), there is likely to be interplay.

Firms that operate in both schemes (e.g. an oil major with a refinery under ETS1 and fuel sales under ETS2) will manage a portfolio of carbon positions.

We might see the emergence of trading strategies that arbitrage between ETS1 and ETS2 prices if differences arise, although direct substitution is limited since allowances aren’t interchangeable, a relatively high ETS2 price could indirectly increase demand for biofuels (which might have implications in the ETS1 sector via refinery credits).

Over time, policymakers could consider merging or linking these markets if it improves efficiency, but for now they remain distinct.

What is certain is that carbon trading expertise is becoming even more indispensable in the energy sector, and companies like CFP Energy are leveraging decades of carbon market experience to guide clients through this complexity.

Toward a Unified EU-UK Carbon Market and Beyond

Looking five to ten years ahead, ETS2 could be just the start of an even more interconnected carbon market for road transport.

A notable development on the horizon is the potential linkage between the EU ETS and the UK ETS.

In May 2025, the EU and UK announced plans to work towards linking their carbon markets, aiming for closer cooperation and mutual recognition of allowances.

For this to happen, the UK will likely need to align its system with the EU’s – and indeed the UK government has been consulting on expanding the UK ETS to cover road transport and heating fuels, mirroring ETS2’s scope.

If the linkage proceeds (possibly by the late 2020s or early 2030s), we could see a unified carbon market across Europe where EU ETS2 allowances and UK equivalents are interchangeable.

This would bring benefits of a larger market, greater liquidity, more stable prices and a level playing field for companies operating on both sides of the Channel

For businesses, it means simplification – one common carbon price signal and one set of trading instruments across EU and UK operations.

It could also spur investment flows between the markets, as UK firms might tap into EU carbon funds or EU companies invest in UK emission reduction projects.

The next 5–10 years will be a learning period as the market matures, policies fine-tune, and infrastructure catches up.

By the mid-2030s, we will may look back at 2027 as the start of a profound transformation in road transport, where decarbonisation became not just an environmental imperative but a core economic factor in the industry.

So, if you're part of the industry, the message is clear.

Now is the time to position your business for the carbon-priced road ahead, and those who do so will be best placed to thrive in the ETS2 era and beyond.