In 2027, the European Union will expand its Emissions Trading System through a new phase known as ETS2. For the first time, emissions from road transport and building heat will be covered by a carbon price. This change turns carbon from an environmental issue into a direct operating cost that affects every part of the European economy.

Under ETS2, fuel distributors will buy carbon allowances and pass those costs through the supply chain. Analysts expect prices near €45 to €50 per ton of CO₂, which would add 10 to 15 eurocents per liter to fuel costs and raise heating expenses by about 20 to 25 percent. The EU’s Social Climate Fund, worth around €86 billion, will help offset the burden for lower-income households, but energy and transportation costs will still rise for most businesses and consumers.

The policy’s effect will extend across freight, warehousing, and manufacturing. ETS2 integrates carbon pricing into the cost base of logistics and supply chains, linking emissions directly to financial performance.

Carbon impact on consumers

Consumers will see immediate cost increases as fuel and heating expenses rise. Higher household energy costs will translate into higher prices for goods and services, since transportation and building operations are now subject to allowance pricing.

Energy markets are expected to experience greater volatility as carbon prices fluctuate, introducing a new variable for logistics and industrial planning. While the Social Climate Fund will provide temporary relief, the overall trajectory is toward higher and less predictable operating costs.

Effects on transport and logistics

ETS2 will directly influence the cost and structure of European transport networks. Road freight operators, which depend heavily on diesel fuel, will face the largest impact.

Industry estimates suggest total freight costs could rise by 3 to 8 percent, depending on fleet efficiency, route structure, and regional energy mixes. Carriers will likely pass these increases to shippers through new fuel surcharges or contract adjustments.

Companies are already planning mitigation measures. These include electrifying or hybridizing fleets, shifting more freight to rail and inland waterways, and using data analytics and telematics to optimize routing and reduce idle time. Because carbon allowances are traded in open markets, transport pricing will include a carbon volatility premium.

CFOs and logistics planners will need to integrate carbon-cost modeling into financial systems alongside traditional fuel forecasts. Compliance obligations will expand as companies are required to report verified emissions data and provide Scope 3 information to customers and regulators.

Effects on industrial operations

ETS2 will also raise production costs for energy-intensive sectors such as steel, cement, chemicals, and automotive manufacturing. These industries already face higher energy prices compared with global competitors, and the addition of a carbon price on fuel and heating compounds that disadvantage.

Without improvements in efficiency or cleaner energy inputs, some plants may reduce output or relocate production to lower-cost regions. Others may use the regulation as justification to invest in hydrogen systems, electrified heat, and renewable power, improving long-term competitiveness.

Industrial activity is expected to consolidate around areas with abundant and affordable renewable energy. Central Europe may continue to specialize in automotive and advanced components, Iberia could benefit from low-cost solar energy, and the Nordic countries are well-positioned to expand production of low-carbon metals and materials.

Industry relocation and global competition

ETS2 may encourage relocation toward India, China, and Southeast Asia, where energy remains less expensive and environmental regulation is lighter. Low-margin producers and basic material industries are most likely to shift operations in search of cost advantages.

However, several factors will limit this movement. The Carbon Border Adjustment Mechanism (CBAM) will impose tariffs on carbon-intensive imports, reducing the economic benefit of offshoring. In addition, supply chain strategies developed after the pandemic now emphasize resilience and proximity, making distant production less attractive. Automation and renewable energy investments are also reducing the importance of cheap labor and fossil fuel costs in total production expense.

The likely result is a mixed pattern: basic manufacturing migrating abroad, while advanced, low-emission manufacturing consolidates inside Europe. The region’s competitiveness will depend increasingly on data integration, energy efficiency, and digital control of emissions.

Role of digital product passports

The upcoming Digital Product Passport (DPP) initiative will play a key role alongside ETS2. DPPs will store verified information about a product’s materials, origin, energy use, repairability, and carbon footprint.

This data will enable precise tracking of embedded emissions across production and transport networks. Integrated into ERP, procurement, and logistics systems, DPPs will improve accuracy in Scope 3 reporting, support compliance with CBAM, and enhance supplier evaluation.

Over time, DPPs will also help companies identify circular-economy opportunities, such as parts reuse and recycling. By linking emissions and material data, they make it possible to measure environmental performance at the level of individual products and shipments.

Benefits

ETS2 introduces measurable carbon accountability across supply chains. It will accelerate investment in low-emission technologies, improve the quality and traceability of sustainability data, and encourage the development of regional logistics networks supported by renewable energy.

For logistics and supply chain executives, ETS2 provides a consistent framework for comparing emissions performance and cost across carriers, facilities, and sourcing regions.

Costs and risks

ETS2 will raise operating costs for transport, warehousing, and manufacturing. Companies that rely heavily on fossil fuels will experience margin compression until alternative energy sources become more available. Smaller operators may face financial and administrative strain from the added reporting and compliance requirements.

Volatility in carbon allowance markets will make budgeting more complex, while infrastructure for electric fleets and renewable power generation may take several years to scale. The adjustment period is likely to be uneven across sectors and regions.

Strategic outlook

ETS2 embeds carbon pricing into the financial structure of supply chains. Carbon will now function as a standard input cost, alongside energy, labor, and raw materials.

To adapt, organizations will need to integrate emissions data into procurement systems, transport management tools, and corporate finance processes. Advanced analytics, AI-based control towers, and DPP-linked data streams will support real-time modeling of carbon exposure and efficiency performance.

The key operational metric will shift toward output per kilogram of CO₂ emitted, reflecting both cost control and environmental compliance.

Conclusion

ETS2 will increase short-term costs across Europe’s logistics and manufacturing sectors, but it will also standardize how emissions are measured, priced, and managed.

For supply chain leaders, the central challenge is operational—integrating carbon data into day-to-day planning, optimizing transport efficiency, and investing in low-emission infrastructure.

The result will likely be a more transparent and efficient logistics network, built around renewable energy and digital monitoring. ETS2 marks a transition to an economy where carbon cost management becomes a core element of supply chain strategy and competitiveness.

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