Diesel fuel could increase by 50 cents per liter due to carbon market rules, writes the FT

Motorists in the European Union (EU) should prepare for significant increases in diesel prices, as a result of the expansion of the EU carbon market, according to the Financial Times this Monday.

From 2027, fuel suppliers will have to purchase permits to cover their carbon dioxide emissions under the new Emissions Trading System (ETS2), with costs expected to be transferred to consumers. Estimates from Veyt, a carbon market analysis company, cited by the FT, suggest that, by 2031, diesel prices could increase by at least 50 cents per liter due to these carbon costs.

The introduction of ETS2 represents a step in the EU’s broader strategy to reduce greenhouse gas emissions by 55% by 2030. This system will work in a similar way to the current capping mechanism. and emissions trading, which regulates emissions from power plants and heavy industry, but will extend its scope of application to the transport and housing sectors.

Initial projections indicate that the regime will add 14 cents per liter of diesel in 2027. As the program is implemented, it is expected that this premium will increase to 54 cents per liter in 2031. The repercussions of the ETS2 will not be limited to transport fuel; Emissions from heating fuel will also come under scrutiny, potentially increasing the price of heating fuel.

To mitigate the financial impact on vulnerable groups, the EU has planned a “social climate fund”. This fund aims to help lower-income families and small businesses cover the costs of insulation, improving energy efficiency and transitioning to decarbonized transport options.

This initiative also seeks to avoid the type of social unrest seen during protests such as the yellow vests in France in 2018, which were triggered, in part, by increases in taxes on diesel intended to reduce emissions of polluting gases. Similarly, recent farmer protests across the EU have highlighted the sensitivity of fuel costs as a flashpoint for public dissent.

In response to rising fuel costs, some industry groups are advocating alternative solutions, such as the adoption of hybrid fuels that incorporate vegetable oil. This approach aims to reduce emissions and, at the same time, keep costs more affordable for consumers.