EU flags in front of the Berlaymont building, headquarters of the European Commission, in July 2025;
Credit: Ali Sahib, Chronicle.lu
On Thursday 19 March 2026, Luxembourg's Ministry of the Environment, Climate and Biodiversity announced that the Grand Duchy will join the new European Union Emissions Trading System (EU ETS2) for fuels from 2028.
This mechanism, established under Directive (EU) 2023/959, aims to strengthen carbon pricing in three areas: buildings, road transport and certain industries using fossil fuels.
EU ETS2 applies to companies that place fuels and fossil fuels on the market. In Luxembourg, this concerns approximately 20 companies.
Since 2025, these companies have been required to declare the quantities of fuels they place on the market. From 2029, they will have to surrender allowances corresponding to the emissions generated in the previous year.
Allowances will be auctioned. Part of the proceeds will be allocated to the Social Climate Fund and redistributed to EU Member States according to their social climate plans. The remainder will be paid directly to the Member States, which must use these proceeds to finance climate and social measures.
Directive (EU) 2023/959 also gives Member States the option of temporarily exempting the relevant suppliers from EU ETS2 until December 2030, provided they are subject to a national carbon tax at least equivalent to the average EU ETS2 allowance price.
In November 2023, Luxembourg notified the European Commission of its CO2 tax but did not commit to requesting this exemption.
According to the ministry, not joining EU ETS2 would expose Luxembourg to price uncertainty (risk of fluctuations), requiring frequent adjustments to national carbon taxation. Without such a mechanism, if the national tax were slightly lower than the average EU ETS2 price, the exemption would no longer be valid and suppliers would have to purchase allowances in addition to paying the national tax.
Given these risks - and the fact that only one Member State currently plans to use the exemption - Luxembourg has opted to fully join EU ETS2, while maintaining a supplementary national tax on fossil road fuels to meet its climate objectives.
Revenue generated from the auctioning of EU ETS2 allowances will be used to finance climate and social measures, in accordance with the EU directive. Part of this revenue will also be allocated to Luxembourg's Climate and Energy Fund.
