Gasoline and Diesel Prices: New Forecast – How Expensive Filling Up Will Become From 2027
News Summary
Starting January 1, 2027, the EU will launch the ETS II carbon emissions trading system, including emissions from transport and buildings for the first time. Unlike Germany's current fixed carbon price (€55 per ton), the price under ETS II will be determined by the market. A new futures exchange for these carbon allowances began trading on May 6, 2025. On the first trading day, the price for 2027 delivery was €73 per ton of CO2, significantly above Germany's current national price. Should the €73 per ton level hold, the price of gasoline could rise by around 18 cents per liter and natural gas by 1.5 cents per kilowatt-hour starting in 2027. Multiple forecasts suggest carbon prices could reach €100 to €300 per ton by 2030, leading to significantly higher fuel price increases (some forecasts up to 35-60 cents per liter). The German government supports ETS II but plans to use part of the revenue to lower electricity prices instead of providing a climate dividend. For consumers continuing to use internal combustion engine vehicles and gas heating, costs will increase significantly in the future. While the EU retains the option to delay the system's start by one year in case of severe social disruption, this is not something to rely on.
Background
The EU Emissions Trading System (ETS) is a cornerstone of the EU's climate policy, aiming to reduce greenhouse gas emissions by setting a cap on emissions and allowing companies to trade allowances. The current ETS primarily covers the power sector and energy-intensive industries. To further drive decarbonization in the transport and building sectors, the EU decided to launch ETS II, bringing these two areas under a carbon pricing system. Germany currently has a national fixed price for carbon emissions in the transport and building sectors, currently at 55 euros per ton. ETS II will introduce a market-driven carbon price, where fossil fuel suppliers must purchase allowances and pass the costs onto end consumers.
In-Depth AI Insights
What key signals does the first ETS II futures price of €73/ton send to the market? - It indicates that market participants expect the carbon price when ETS II launches in 2027 to be significantly higher than Germany's current national price of €55/ton. This reflects expectations of tightening carbon reduction policies and allowance scarcity in the future. - A forward price higher than the current price provides a tool for energy companies and traders to hedge against future cost increases, while also locking in some future profit expectations. - This price provides an initial benchmark for the market, likely influencing companies' and consumers' long-term expectations for fossil fuel costs, thereby potentially accelerating the transition to lower-carbon alternatives. What are the potential impacts of ETS II on the energy sector and related investment areas? - Fossil Fuel Suppliers: Face direct cost increases as they must purchase carbon allowances. This could squeeze margins unless costs can be fully passed on to consumers. Demand may decline in the long term due to price increases. - Automotive Manufacturers: Rising carbon prices will further increase the cost of using internal combustion engine vehicles, accelerating the adoption of electric vehicles. Companies investing in EV technology, battery production, and charging infrastructure stand to benefit. - Heating Sector: Increased costs for gas heating will stimulate demand for alternative heating methods like heat pumps and biomass. Manufacturers and installers of related equipment will see growth opportunities. - Renewable Energy: While ETS II directly targets transport and buildings, its overall effect of raising fossil energy costs indirectly enhances the relative competitiveness of renewables like wind and solar in the energy system. What are the investment strategy implications of the German government choosing to lower electricity prices instead of providing a climate dividend? - Supporting Electrification: Lowering electricity prices directly benefits technologies dependent on electricity, such as EVs and heat pumps. This is a strategy to drive the transition by reducing the operating cost of alternatives, rather than directly subsidizing consumers. - Support for Specific Industries: The redistribution of revenue towards the electricity sector could alleviate some of its cost pressures in the energy transition or incentivize further investment in renewables and grid infrastructure. - Social Impact Management: Avoiding direct subsidies might simplify administration, but a potential drawback is that low-income households reliant on fossil fuels and unable to switch easily may face greater cost burdens. This poses a social risk, which the EU's retained option to delay is intended to address.