The first trade in ETS2 allowances took place on Tuesday, May 6, 2025. The futures contract for delivery in December 2028 is tradable via ICE. The contract is trading at around EUR 78 per ton. Market liquidity is currently limited, but it is expected to increase as the system’s implementation in 2027 approaches.
The ETS2 market is influenced by several distinctive factors. Unlike the regular EU ETS, no free allowances are allocated. In addition, the emissions cap declines relatively quickly. Moreover, demand for ETS2 products is relatively inelastic with respect to price changes. These factors are expected to result in a tight market and contribute to upward pressure on prices.
At the same time, the European Commission has introduced a mechanism intended to counteract excessive price increases. This “soft price cap” includes three scenarios under which additional allowances are released into the market. However, market participants may anticipate these predefined scenarios, potentially creating technical resistance levels around the corresponding price points. As a result, the effectiveness of the soft price cap could be undermined.
Finally, the Social Climate Fund is intended to reduce the burden for financially vulnerable groups. The fund acts as a buffer against potentially significant increases in household energy bills and gasoline and diesel prices. The key question is whether policymakers can design the system in such a way that it offers sufficient reassurance to the public.
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