Europe’s second carbon market, the ETS2 covering buildings and road transport fuels, has recorded no transactions in its benchmark futures contract for almost two months, according to Carbon Pulse reporting. For fuel suppliers, traders, and investors, a market that is supposed to price carbon for tens of millions of households and vehicles is drifting toward launch with effectively no price discovery and a growing list of political question marks.
The liquidity collapse is a symptom, not the disease. ETS2 futures for 2028 to 2030 delivery started trading on ICE in May 2025, and their liquidity has been described by market participants as practically zero from the start. A contract that nobody trades cannot tell a fuel supplier what its 2028 compliance obligation will cost, cannot support hedging, and cannot attract the financial intermediaries that make a carbon market functional.
A Market Designed in Brussels, Delayed in the Capitals
ETS2 was created to extend carbon pricing to fuels used in buildings, road transport, and small industry, sectors that sit outside the original EU ETS. Its regulated entities are fuel suppliers rather than households or drivers: companies that sell heating and transport fuel must monitor emissions and surrender allowances for what they sell. All allowances are auctioned, with revenues flowing to member states and to the Social Climate Fund, and the cap is calibrated to cut covered emissions by 42% by 2030.
The political backing for that design has been eroding. The system was originally scheduled to become fully operational in 2027, but in November 2025 the European Council, supported by the European Parliament, agreed to push the start to 2028 to allow smoother implementation. That postponement still required formal adoption, and transposition into national law has been uneven. IETA warned earlier this year that the Commission needs to clarify the rules for member states that may not transpose ETS2 in time, cautioning that inconsistent national approaches would fragment the market before it opens.
The October 2025 overhaul package shows how hard Brussels has been working to keep the project alive. After 19 member states urged stronger safeguards, the Commission doubled the volume of allowances released under the soft price cap of €45 per tonne of CO2 equivalent, to 40 million per intervention, applicable twice per year. Analysts at ClearBlue Markets estimated that could inject as many as 80 million allowances annually between 2027 and 2029 if prices surge. The package also extended the Market Stability Reserve beyond 2031 and created a Frontloading Facility with the European Investment Bank to pre-finance efficiency and mobility investments.
What Dead Liquidity Means for Compliance Planning
For a fuel supplier, an illiquid futures curve is not an abstract market structure problem. It is a budgeting problem. Companies that will carry ETS2 obligations from 2028 need a forward price to build into procurement contracts, retail pricing, and hedging programs. With no meaningful trades in the benchmark contract, that price signal does not exist, and every internal carbon cost assumption rests on analyst estimates rather than market data.
The absence of liquidity also deters the intermediaries whose participation would create it. Banks and trading houses commit capital to markets where they can enter and exit positions. A contract with no turnover for two months fails that test, which reinforces the stall. This is the chicken-and-egg problem every new emissions market faces, but ETS2 is facing it with an unusual handicap: its start date has already slipped once, and traders price political risk as readily as they price carbon.
The Credibility Question Runs Deeper Than One Contract
The stakes go beyond one futures market. ETS2 is the demand engine behind the Social Climate Fund, the EU’s main instrument for shielding vulnerable households from carbon costs on heating and transport. If the market launches late, launches soft, or launches with member states transposing different rules, both the revenue stream and the political bargain behind it weaken.
There is also a signaling cost for the wider carbon market landscape. Europe has spent two years telling international partners that carbon pricing is expanding to new sectors, and the proposed EU ETS reform package leans on market instruments, from carbon contracts for difference to a planned removals purchasing program. A flagship market that cannot attract a single trade for two months undercuts that narrative at exactly the moment the EU wants its carbon architecture to look investable.
What to Watch Before 2028
Three markers will show whether ETS2 recovers credibility. First, transposition: how many member states write the system into national law on schedule, and whether the Commission answers IETA’s call for clear fallback rules for laggards. Second, the auction calendar: auctioning is due to begin ahead of the first surrender obligation in 2028, and the first auction results will be the market’s first real price test. Third, futures activity itself: any sustained return of volume to the ICE contract would signal that compliance buyers have started taking the 2028 obligation seriously.
Until those markers appear, the prudent read for buyers and investors is straightforward. ETS2 remains law, and the compliance obligation is real. But a carbon market that opens without liquidity, without uniform national rules, and without visible political commitment from its own member states is a market whose early prices will be formed in the dark. Companies with 2028 exposure should plan for a wide range of outcomes, because right now the market itself refuses to narrow it.
