EU Approves Stronger Carbon Market Price Controls to Shield Consumers from Rising Fuel Costs
Brussels, Friday, 20 February 2026.
European Union member states backed enhanced price stabilization measures for the bloc’s new carbon market system on February 18, 2026, responding to mounting concerns that carbon pricing could drive up household energy bills. The decision introduces mechanisms to release additional carbon permits if prices reach 45 euros per metric ton, potentially adding 80 million permits annually to prevent excessive volatility. This move comes amid fierce political divisions, with countries like Slovakia and Czech Republic pushing for delays while Sweden and Netherlands oppose further postponements of the 2028 launch.
Market Volatility Drives Policy Response
The strengthened price controls represent a direct response to recent market turbulence that has seen EU carbon prices fluctuate dramatically. After breaking above €92 per metric ton in mid-January 2026, EU Allowances (EUAs) experienced a sharp correction, dropping below €70 per metric ton at one point during February [1]. This 0.25 percent sell-off since mid-January has been attributed to policy uncertainty and speculative trading activity by investment funds [1]. The volatility has prompted concerns from political leaders, with German Chancellor Friedrich Merz suggesting on February 11, 2026, that the EU ETS should be revised or postponed if it undermines industrial competitiveness [2]. Czech Prime Minister Andrej Babis has gone further, calling for a carbon price cap of €30 per metric ton [2].
ETS2 Launch Faces Political Headwinds Despite Nordic Support
The Emissions Trading System 2 (ETS2), scheduled to begin in 2028, will impose carbon pricing on emissions from heating and transport fuels [3]. However, the system faces significant political opposition from several member states. Slovakia and the Czech Republic have expressed particular concern about the policy’s potential to drive up energy costs for households and businesses [3]. In contrast, Sweden, Denmark, Finland, and Luxembourg have formed a coalition opposing further delays to ETS2, arguing that additional postponements would weaken EU climate policy effectiveness and undermine investor confidence [3]. The Netherlands has also joined Sweden and five other governments in opposing further delays, as reported on February 17, 2026 [1]. This division reflects broader tensions within the EU over balancing decarbonization goals with economic competitiveness concerns [3].
Revenue Generation and Investment Framework
The ETS2 system is designed to generate substantial revenue streams that will be reinvested in clean energy infrastructure. Revenues from the carbon market will fund investments in electric vehicles and energy-saving renovations for both households and businesses [1]. This mechanism represents a key component of the EU’s strategy to use market-based pricing to drive emissions reductions while providing financial support for the energy transition. European Commission President Ursula von der Leyen has defended the EU ETS framework, stating she would encourage member states to reinvest carbon permit auction revenues into industrial decarbonization [2]. The Commission has already auctioned over 17.1 million allowances for REPowerEU this year [1].
Speculative Activity and Market Structure Concerns
The carbon market has attracted significant attention from financial speculators, raising concerns about price distortions that could undermine the system’s climate objectives. Investment funds built up a record net long position in EUAs, purchasing over 100,000 lots between August 2025 and January 2026 [1]. The fund long position as a percentage of total open interest reached almost 23% in January 2026, well above the 2018-2025 average of just over 7% [1]. This financialization has drawn criticism from policy experts who warn that excessive speculation could lead to price distortions and force regulatory interventions [4]. French President Emmanuel Macron has blamed high carbon prices on speculation, suggesting that EUAs should trade around €30-40 per metric ton rather than current levels [1]. The concern is that the EU carbon market, originally designed as a policy instrument, risks shifting toward actors whose incentives are not aligned with decarbonization goals [4].