MNI: EC Autumn Inflation Forecast To Assume Mitigated ETS2

The European Commission's autumn forecasts will take account of recent proposals by EC President Ursula von der Leyen to mitigate the impact of new carbon-trading plans, potentially allowing for a materially lower 2027 inflation outlook.

Von der Leyen called on Oct 21 for a "more robust price stabilisation system by further enhancing the role of the ETS2 Market Stabilisation Reserve", a move aimed to reduce the impact of the planned extension of the EU's Emissions Trading Scheme to household heating and road transport. 

"The forthcoming Autumn economic forecast (November 17) will incorporate ETS2 in a way which is consistent with the general direction provided in the President’s letter," the Commission told MNI. (See MNI: EU Likely To To Limit Fuel Price Hit From ETS2 CO2 Scheme)

EU Climate Commissioner Wopke Hoekstra said the proposal outlined by Von der Leyen could mean a EUR45 trigger price for intervention by the Market Reserve compared with the existing ETS2 implementation plan’s EUR58 ceiling in 2027 prices.

2027 FORECAST

In addition, von der Leyen said the Commission would "explore the possibility" of frontloading of states' ETS2 revenues, supported by financing from the European Investment Bank, "in order to support low- and middle-income households in reducing their heating or mobility bills early on.” The modifications to ETS2 still have to be approved by member states and the European Parliament.

 An EC impact assessment of ETS2 had forecast the scheme would prompt a fuel price increase of EUR0.11 per litre for petrol and EUR0.13 per litre of diesel, with other studies forecasting a fuel price increase of up to EUR0.50 by 2030. The ECB estimated its impact on inflation at around +0.2 to +0.3pp.

The European Central Bank’s September projections have headline inflation averaging 2.1% in 2025 and 1.7% in 2026, before edging up to 1.9% in 2027, in large part due to ETS2. (See MNI SOURCES: Doubts Over EU Carbon Pricing Key For ECB Rates)

The Commission’s spring forecast had inflation at 2.3% this year before easing to 1.9% in 2026. A 2027 forecast will be added in the autumn round.