ETS2 is a new carbon pricing cap-and-trade system created by the European Union to reduce greenhouse gas emissions from road transport, buildings, and additional small industrial sectors. Original EU ETS targets heavy industry and large power plants.

The Estonian government has previously been critical of ETS2, and Prime Minister Kristen Michal said already in mid‑June that it should be postponed.

Last week, Prime Minister Michal said the aim is to cancel it altogether.

"The desire to achieve the goals is understandable, and I am generally on the side of new technology and a cleaner environment, but this is simply too bureaucratic to succeed, or at least to succeed in a meaningful way," Michal said, adding that this is also the official position of the government and the state.

Commission sees no reason for change

"Everything is theoretically possible, but at the moment the European Commission sees no reason to put a new amendment proposal on the table," said Helena Braun, head of the policy division at the European Commission Representation in Estonia.

Braun said that 18 EU member states have already transposed ETS2 into national law, three have done so partially, and six have not. Estonia is among the latter group and submitted, together with nine other countries, a request to review ETS.

Citizens of EU member states generally support the Union's climate goals. On average, support for the EU's 2050 climate‑neutrality target stands at 81 percent.

In Estonia, however, the figure is only 46 percent — the lowest in the EU.

Since Estonia is strongly opposed to the system, what would happen if Estonia does not adopt it by 2027?

"The European Commission opens infringement proceedings against a member state if agreed EU law has not been transposed into national law. This infringement procedure is currently ongoing, and we do not comment further on the content of ongoing procedures," Braun said.

Through infringement proceedings, the Commission applies legal measures against member states that have not fulfilled obligations arising from EU law.

In the first phase, the Commission sends the country a formal notice, to which it must respond within two months and commit to remedying the violation.

If the Commission considers the response insufficient or the violation continues, it sends a reasoned opinion in the second phase, describing precisely the nature of the violation and giving a new deadline (usually two months) to correct the situation.

Other adjustments needed

According to Braun, Europe's energy price level is very high compared with, for example, the United States, and the reason is that Europe must buy more than half of its consumed energy from third countries.

"Since 2022, when Russia launched its full‑scale war against Ukraine, Russia used Europe's heavy dependence as a weapon. Today we see the same in the Strait of Hormuz crisis. Since the closure of the strait, Europe has paid 50 billion euros more for energy without receiving a single extra molecule. Fifty billion is an enormous amount of money that we could have invested in our economy and in people," Braun said.

The Commission wants to extend the distribution of free allowances to energy‑intensive industries, such as steel and cement production. This would apply until 2038.

According to Braun, the extension aims to protect European industry more strongly and give these sectors breathing room. However, the free allowances would not be unconditional: companies would receive 80 percent of the allowances if they have a concrete plan for cleaner production, and the remaining 20 percent once investments have been made according to the plan.

Previously, each country could allocate its ETS revenue essentially wherever it wished. This meant member states could use it, for example, to patch budget holes or invest in infrastructure.

In the future, however, at least 50 percent of the revenue must go back to the sector from which it originated. According to Braun, only five percent of ETS revenue has gone back to those sectors so far.

"It will no longer be entirely up to member states to decide where they direct ETS revenue," she said, adding that 50 percent of the revenue would still go toward supporting a just transition and helping people through the process.

Braun said she could not yet say whether ETS changes might raise the price of heating or waste collection in Estonia.

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