Fossil fuel could rise by nearly 40 cents in 2027

Gas station.
Gas station. Source: Ken Mürk/ERR

The German think tank estimates that fossil fuel prices could rise by around 40 cents per liter in 2027, when the ETS will be extended to the transport sector. The Ministry of Climate makes a more conservative prediction – an increase of up to 10 percent.

A year ago, EU member states agreed to extend the Emissions Trading Scheme (ETS) from the energy sector to road transport from 2027 (ETS2). This means that in addition to excise taxes, the carbon component will also be reflected in the price of fuel. The more polluting the fuel, the higher the tax.

The European Union wants to encourage people and businesses to use less fossil fuels. Clean Energy Wire, the news outlet that covers energy issues, writes that since countries like Germany have so far failed to meet their national greenhouse gas reduction targets, they should also prepare for a sharp rise in fuel prices. Fuel could rise by 38 cents a liter by early 2027, the paper writes.

Estonia's climate ministry does not forecast such a big jump in fuel prices.

"Last year, the Ministry of the Environment commissioned an ETS2 impact assessment, which found that heating prices could increase by up to 17 percent in 2030, mainly due to higher natural gas prices, and transport fuel prices could increase by 10 percent. However, this is a worst-case scenario that does not take into account the possibility that investments or other measures could reduce the use of fossil fuels in the transport and buildings sectors by the time the ETS2 comes into effect," Laura Remmelgas, an adviser at the Ministry of Climate, said.

Clean Energy Wire wrote that the carbon price could rise to more than €200 per ton in 2027. However, the plan also has a safeguard mechanism that would put additional units on the market if the price exceeds €45 per ton. The additional units then would bring the market price back down.

Gasoline prices rose for the second time in two days on August 2. Source: ERR

However, Imre Banyasz, an environmental expert, said that companies' need for credits could be so extensive that the stabilizer mechanism would not be enough.

"At least in the early years, the price is more likely to be around €45 or a little lower. As the EU's 2040 climate targets will also be discussed next year, this could influence the behavior of companies, for example by making them more interested in buying more credits in the early years of the scheme. It is certainly difficult to predict the unit price in the early years," she said.

Banyasz said that it was important for the country to start using less polluting fuels in the transport sector to avoid price increases.

"In the case of cars, for example, more and more electric vehicles are coming onto the market, and those who can afford an electric car, for example, are not affected by this trading scheme. For larger transportation companies, however, the transition is longer and it is more difficult to say what the alternatives might be: certainly cleaner fuels, but which exactly? There are many different stakeholders," she said.

Remmelgas said that, alongside ETS2, there are also plans to set up a social fund for climate to mitigate the effects of the trading system on vulnerable groups.

The social climate fund is €248 million for Estonia right now and it will be used to prepare next year's strategy.

Remmelgas explained that the social climate plan should set out measures to mitigate the impact of price increases, but also to reduce carbon emissions. This could be, for example, the promotion of public transport, increasing the share of electric vehicles or renovation subsidies.

"While this measure also allows for the possibility of direct government subsidies to mitigate the price impact, it cannot be the only and central measure, as in the longer term it is still important to switch to more sustainable fuels, improve the energy efficiency of buildings and increase the availability of sustainable modes of transport to reduce vulnerability," she said.


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Editor: Mirjam Mäekivi, Kristina kersa

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