On March 18, 2026, 10 European Union (EU) Member States sent a letter to the European Commission, labeling the bloc’s carbon regulation policy an “existential risk” to industrial sectors and calling for immediate reform. [1] The letter comes amid the broadening controversy over the expansion of the EU’s carbon mitigation programs. Under the European Climate Law, the EU has committed to collective greenhouse gas (GHG) reductions, instituting a variety of widely successful economic-based policy measures to support its objectives. Now, the EU is endeavoring to expand the system with the Emissions Trading System (ETS2), a cap-and-trade regulatory framework that seeks to cover an industry previously unaccounted for: fuel supply. According to a report released by the European Commission, “emission reductions in those sectors have been insufficient to put the EU on a firm path towards its 2050 climate neutrality goal” and “The ETS2 cap will be set to bring emissions down by 42% by 2030.” [2] The program is anticipated to become fully operational in 2028, yet reporting and monitoring of the relevant sectors have already commenced. [3]

The EU Emissions Trading System (ETS), launched in 2005, became the world’s first carbon market covering 40% of total GHG emissions in the EU. It applies to emissions from electricity, heat generation, industrial manufacturing, aviation, and (beginning in 2024) maritime transportation. [4] Predicated on a “cap and trade” principle, the EU ETS fixes limits on the total amount of GHG that can be emitted by regulated operators in the form of allowances in tonnes of CO2. These allowances can be auctioned, traded, and sold on the EU carbon market, providing an incentive for companies to reduce emissions. Since 2013, the sale of allowances has generated over €175 billion, revenue that is then directed toward national budgets and Member States to support investment into renewable, low-carbon, and energy-efficient improvements. [5] The ETS Directive, the legislative framework for the EU ETS, has undergone several revisions since its launch to support broader climate goals set out in the 2023 European Climate Directive, aiming for a climate-neutral European economy and society by 2050, with a 55% reduction in GHG emissions by 2030. [6] Drawing on the precedent of EU climate policy and decarbonization frameworks, the European Union’s proposed launch of ETS2 offers a legally viable mechanism to address regulatory shortcomings in the building and transport sectors and support the EU’s 2050 climate neutrality targets despite claims of its anomalous overreach. 

The broadened ETS framework has faced intense backlash from opponents, including Poland, Hungary, Germany, and the Czech Republic, who argue that extending carbon pricing to essential consumer goods, such as buildings and road transport, will impose heavy burdens on ill-equipped regions, exacerbating housing inequity and energy crises. [7] Poland has been a long-time critic of ETS and has been at the forefront of resisting the enactment of ETS2. In March 2026, Polish Prime Minister Donald Tusk posted, “Poland will demand specifically Polish solutions that respect our situation, in which ETS is a significant and negatively decisive factor when it comes to energy prices.” [8] In the 2023 Case C-512/23, Poland v. Parliament and Council, the Republic of Poland requested that the Court of Justice of the European Union require the European Parliament and Council of the European Union to completely annul its carbon border adjustment regulation, a policy that enacts a fee on carbon-intensive imported goods, and pay the costs the Republic bore for its institution. [9, 10] Poland contested that the EU’s Carbon Border Adjustment Mechanism “goes beyond what is necessary to achieve its objectives and it entails high costs as compared with the intended objectives.” [11] Such claims substantiate the common criticism of the EU’s carbon pricing mechanisms: they are fiscal in nature and therefore impermissible because they impose disproportionate costs on member state governments, firms, and now, with the introduction of ETS2, individuals by increasing the costs borne by entities that release fuels for consumption. 

By placing economics at the forefront of Europe’s welfare considerations in opposing ETS frameworks, opponents undermine the profound benefits such policies have for public health, as well as the legal obligation for EU member states to adopt effective climate change measures. In the landmark ruling, Verein KlimaSeniorinnen Schweiz and Others v. Switzerland (2024), an association under Swiss Law filed a complaint on behalf of its 2,000 older women members, alleging that heatwaves have drastically impacted their lives and exacerbated health issues and accusing Swiss authorities of failing to mitigate climate change effectively. [12] Appeals to the Federal Administrative Court and the Federal Supreme Court were rejected, and in 2022, the application was submitted to the Grand Chamber of the European Court of Human Rights (ECtHR). [13] In response, the ECtHR established a notable precedent declaring the duty of states to implement climate policies consistent with human rights obligations. In addressing the Swiss Government’s lack of compliance with climate mitigation measures, the ECtHR claims “the inadequacy of past State action to combat climate change globally aggravated the risks of adverse consequences and the ensuing threats for the enjoyment of human rights.” [14] In effect, the ruling ordered Swiss authorities, now supervised by the Committee of Ministers, to enact climate change mitigation measures compliant with the Convention’s obligations and to pay €80,000 in restitution to KlimaSeniorinnen.

As a result of Verein KlimaSeniorinnen Schweiz and Others v. Switzerland (2024), the Court attached significance to the findings of the domestic courts including the impacts of climate change on the enjoyment of human rights and the issue of the proportion of state responsibility, determining  “that anthropogenic climate change existed, that it posed a serious current and future threat to the enjoyment of human rights guaranteed under the Convention, that States were aware of it and capable of taking measures to effectively address it.” [15] Importantly, the Court recognizes the issue of causation in its rejection of condito sine qua non (“condition without which not”) which demands that a defendant’s action can be directly linked to an identified harm. [17] By acknowledging how an aggregate of actors perpetuates climate change and the impossibility of conferring corresponding victim status, the Court offers an adaptation of the law in which states’ obligations are defined by whether governments have properly resolved to reduce a risk. Evidently, extrapolating this ruling would necessarily suggest that regulating local pollution falls well within these bounds. Thus, participation in a carbon regulatory program satisfies the condition of fulfilling a responsibility to mitigate climate change-induced harms.

While acknowledging that the contention surrounding the ETS framework focuses on the fiscal consequences for member states, arguments about fears of increased consumer burden may be warranted. With reference to the basic economic principle of elasticity, taxing an inelastic good, such as fuel, or a good for which demand remains relatively constant regardless of price changes, often results in producers’ additional costs being passed on to consumers. Such market predictions have largely fueled the resistance to expanding ETS to the fuel sector. However, the recent dismissal by the General Court of the challenge to the EU’s emission performance standards for heavy-duty vehicles affirms that the EU retains the authority to enact binding CO2 reduction targets for sector actors, thereby discounting attacks on the legality of the framework based on the EU’s alleged economic dominance. The EU’s regulation of heavy-duty vehicles, Regulation (EU) 2019/1242, illustrates an increasing impetus to introduce regulations in the transportation sector, widening “the scope of vehicles covered to include more truck types, buses, coaches, trailers, and vocational vehicles.” [17] The policy, which “increases the stringency of the targets and adjusts the flexibilities available to manufacturers for compliance,” aims to support the Union’s climate neutrality objectives. [18] Such precedent defends the mechanism inherent in ETS2 for introducing accountability within polluting sectors previously excluded from the original ETS framework. 

In addition to the legal permissibility of the mechanism, the potential economic regression is addressed through provisions in the framework, such as the Social Climate Fund (SCF). Revenue from the ETS2 will fund the SCF to sponsor vulnerable households and investments under Member States’ Social Climate Plans. [19] Moreover, in February 2026, the European Investment Bank settled on an ETS2 Frontloading Facility, making €3 billion available to accelerate decarbonization investments, particularly reserved for low and middle-income households. [20] Together, these solutions represent official actions aimed at countering the argument that the ETS framework causes economic volatility. 

Furthermore, the Value-Added Tax (VAT) precedent, which classifies carbon as a transfer of services within the market subject to taxation, demonstrates that carbon pricing instruments represent a logical expansion of a market sector rather than a burdensome regulatory policy. In Case C‑453/15 (A and B) on VAT and transfer of greenhouse gas allowances, the Court of Justice of the European Union (Second Chamber) ruled on December 8, 2016, that emission allowances fall within the scope of Article 56(1)(a) of the VAT Directive as “similar rights.” [21] In the proceedings, A and B, workers of a large tax advice business, were ordered by the Landgericht Hamburg Court to pay fines for being accessories in evading VAT in greenhouse gas emission allowance trading. In specifying the place of supply to avoid non-taxation, Article 56(1) of the VAT Directive provides that for services including (a) “transfers and assignments of copyrights, patents, licenses, trade marks and similar rights” the place of supply is designated as the fixed location of the receiving customer. [22] The Second Chamber ruled that this directive on the commons system of value added tax “must be interpreted as meaning that the ‘similar rights’ mentioned in that provision include the greenhouse gas emission allowances defined in Article 3(a) of Directive 2003/87/EC of the European Parliament.” [23] Thus, the right to emit one ton of carbon dioxide equivalent during a specified period was established as a “similar right” and subject to a value added tax when exchanged domestically. The Court conceded that the interpretation of  “similar rights” was ambiguous, but ultimately declared carbon allowances to fit this definition on the basis that “the legislature grants the holder an absolute right, gives him exclusive authority to use and exploit it, and excludes others from doing so.” [24] The ruling held that emission allowances share key attributes with intellectual property rights–considered in the original article–in that they are immaterial, confer an exclusive right on the holder, are transferable, and are recorded in an official register. As such, the VAT precedent dismantles the argument that carbon pricing is merely a tax; instead, it concretizes its status as a legitimate, regulated market activity. 

In the wake of mounting dissent that frames the European Union’s Emissions Trading System 2 as a disproportionate economic burden, the legal architecture surrounding the ETS2 substantiates its political and economic viability. Its justification is reinforced by a triad of principles: a foundational human rights obligation to mitigate climate harms, a demonstrated regulatory authority to impose binding reductions on the transport sector, and settled legal precedent classifying emission allowances as tradable commodities. Logistically, the program integrates measures such as the Social Climate Fund, which alleviates economic disparities, and the principal ETS framework provides a case for the monetary benefit the program can reap. While the political turbulence signified by the March 2026 letter will likely continue throughout the implementation of ETS2, its legal anchoring in EU climate policy is in no such state of jeopardy.

Edited by Brandon Sahly

Sources

[1] ​​Pacheco, Marta. 2026. “Ten EU Countries Reinforce Attack against ETS ahead of Key EU Summit.” Euronews. euronews.com. March 18, 2026. https://www.euronews.com/my-europe/2026/03/18/ten-eu-countries-revolt-over-carbon-rules-threatening-industry-ahead-of-key-summit.

[2] European Commission. 2023. “ETS2: Buildings, Road Transport and Additional Sectors.” Climate Action. 2023. https://climate.ec.europa.eu/eu-action/carbon-markets/ets2-buildings-road-transport-and-additional-sectors_en.

[3] “EU Emissions Trading System for Buildings and Road Transport (‘EU ETS 2’) | International Carbon Action Partnership.” n.d. Icapcarbonaction.com. https://icapcarbonaction.com/en/ets/eu-emissions-trading-system-buildings-and-road-transport-eu-ets-2.

[4] “About the EU ETS.” 2024. Climate Action. 2024. https://climate.ec.europa.eu/eu-action/carbon-markets/about-eu-ets_en.

[5] “About the EU ETS.” 2024. Climate Action. 2024. https://climate.ec.europa.eu/eu-action/carbon-markets/about-eu-ets_en.
[6] European Commission. n.d. “European Climate Law.” Climate.ec.europa.eu. European Commission. https://climate.ec.europa.eu/eu-action/european-climate-law_en. 

[7] Pacheco, Marta. 2026. “Ten EU Countries Reinforce Attack against ETS ahead of Key EU Summit.” Euronews. euronews.com. March 18, 2026. https://www.euronews.com/my-europe/2026/03/18/ten-eu-countries-revolt-over-carbon-rules-threatening-industry-ahead-of-key-summit.

[8] “Poland to Push for Special ETS Solutions at EU Summit.” 2026. PolskieRadio.pl. 2026. https://www.polskieradio.pl/395/7786/Artykul/3661497. 

[9] Court of Justice of the European Union, “Action brought on 8 August 2023 — Republic of Poland v European Parliament and Council of the European Union” (Case C-512/23, 2023), EUR-Lex, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:62023CN0512.

[10] European Commission. 2025. “Carbon Border Adjustment Mechanism.” European Commission. 2025. https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en.

[11] “Official Journal c 338/25 S.” 2023. Europa.eu. 2023. https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ%3AC%3A2023%3A338%3AFULL.

[12] Verein KlimaSeniorinnen Schweiz and Others [GC], no. 27510/08, (ECtHR, 15 October 2015), https://hudoc.echr.coe.int/eng/#%22itemid%22:[%22002-14304%22].

[13] “Verein KlimaSeniorinnen Schweiz and Others v. Switzerland.” 2020. Climatecasechart.com. Sabin. 2020. https://www.climatecasechart.com/document/klimaseniorinnen-v-switzerland-ecthr_e78f.

[14] Verein KlimaSeniorinnen Schweiz and Others [GC], no. 27510/08, (ECtHR, 15 October 2015), https://hudoc.echr.coe.int/eng/#%22itemid%22:[%22002-14304%22]

[15] Verein KlimaSeniorinnen Schweiz and Others v. Switzerland [GC], no. 27510/08, (ECtHR, 15 October 2015), https://hudoc.echr.coe.int/eng/#%22itemid%22:[%22002-14304%22]

[16] “Sine qua Non: Understanding Its Legal Definition and Importance | US Legal Forms.” 2026. Uslegalforms.com. 2026. https://legal-resources.uslegalforms.com/s/sine-qua-non.

[17] “Regulation – 2019/1242 – EN – EUR-Lex.” 2019. Europa.eu. 2019. https://eur-lex.europa.eu/eli/reg/2019/1242/oj/eng.

[18] “Regulation – 2019/1242 – EN – EUR-Lex.” 2019. Europa.eu. 2019. https://eur-lex.europa.eu/eli/reg/2019/1242/oj/eng.

[19] “EU New Emissions Trading System (ETS2) and Social Climate Fund: Mechanisms, Challenges and Conditions for a Fair Decarbonization in Road Transport.” 2026. Europa.eu. March 5, 2026. https://www.eea.europa.eu/en/analysis/publications/emissions-reduction-from-transport-in-europe-how-the-ets2-will-help-this-sector-meet-its-climate-targets.

[20] “Unlocking €3 Billion for Investment Opportunities in the Decarbonization of Buildings and Road Transport.” 2026. Climate Action. February 4, 2026. https://climate.ec.europa.eu/news-other-reads/news/unlocking-eu3-billion-investment-opportunities-decarbonisation-buildings-and-road-transport-2026-02-04_en.

[21] “EUR-Lex – 62015CJ0453 – EN – EUR-Lex.” 2016. Europa.eu. 2016. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:62015CJ0453.

[22] Council of the European Union, “Council Directive 2008/8/EC of 12 February 2008 Amending Directive 2006/112/EC as Regards the Place of Supply of Services,” Official Journal of the European Union L 44 (February 20, 2008): 11–22, https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:044:0011:0022:EN:PDF.

[23] “EUR-Lex – 62015CJ0453 – EN – EUR-Lex.” 2016. Europa.eu. 2016. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:62015CJ0453.

[24] “EUR-Lex – 62015CJ0453 – EN – EUR-Lex.” 2016. Europa.eu. 2016. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:62015CJ0453.