Explanatory film
National Emissions Trading
Our explanatory film shows how national emissions trading works and illustrates its positive impact on climate protection.
Source: Production: joernbarkemeyer.de
Why does Germany need national emissions trading (CO2 price)?
The carbon dioxide (CO2) emitted into the atmosphere by human activity contributes significantly to climate change. Since 2021, in order to reduce CO2 emissions in a cost-effective manner, national emissions trading (nEHS) has put a price on CO2 emissions from fuels in Germany outside the European Emissions Trading System (EU ETS 1), particularly in the heating and transport sectors. Therefore, the nEHS complements the EU ETS 1 established in 2005 already, which cost-efficiently reduces greenhouse gas emissions from power plants, industrial installations as well as aviation and maritime transport. In total, around 85 percent of all German emissions are covered either the EU ETS 1 or the nEHS.
In total, around 85 percent of all German emissions are included under CO2 pricing by either the EU ETS 1 or the nEHS.
As the heating and transport sectors account for a large share of CO2 emissions not only in Germany, the introduction of the European Emissions Trading System 2 (EU ETS 2) was decided on the European level as part of the “Fit for 55” initiative. The full launch of the new system is planned 2028. You can find more information in the section “European Emissions Trading System 2”.
Further information on EU ETS 2
As the German Emissions Trading Authority (DEHSt) at the German Environment Agency, we are responsible for implementing the nEHS and EU ETS 2.
How does emissions trading work?
European and national emissions trading make it attractive for all participants to invest in climate protection. Both systems work on the ‘cap and trade‘ principle. A political decision is made on how much greenhouse gas can be emitted by all participants together ('cap'). There is no maximum limit for the individual participants.
Anyone who pollutes the air with greenhouse gases pays a price for each tonne of CO2 by purchasing emission certificates for it.
The price for these emission certificates is determined by trading ('trade') on the market. The lower the permitted greenhouse gas emissions, the scarcer and therefore more expensive the emission certificates become. If the price rises, the financial incentive to avoid CO2 emissions on the one hand and to invest in climate protection measures on the other, increases. In the nEHS, the price of the emission certificates is fixed during the introductory phase from 2021 to 2025.
Because we repeatedly receive enquiries as to whether the operation of water turbines or photovoltaic systems entitles involved parties to receive 'certificates', we would like to point out the following: participation in the compliance cycle of the respective emissions trading systems is not possible on a voluntary basis but is subject to legal requirements. This means that we cannot reward efforts to reduce emissions by issuing emission allowances (EU ETS 1) or nEHS certificates, even though we expressly welcome all efforts to reduce greenhouse gases.
Factsheet: national emissions trading
How do EU ETS 1 and national emissions trading differ?
The European Emissions Trading (EU ETS 1) begins where emissions are generated in industry, power plants, aviation and maritime transport. Operators, aircraft operators or shipping companies must purchase emission certificates for the CO2 emissions they cause themselves (‘downstream emissions trading’).
The national emissions trading system has a different starting point. The obligated parties as per BEHG (Fuel Emissions Trading Act) such as gas suppliers, coal suppliers or companies in the mineral oil industry, must acquire pollution rights in the form of certificates (‘upstream emissions trading’). Thus they pay for the emissions that result from the subsequent burning of the fossil fuels by the end user.
The different starting points of the two systems are explained by the sectors involved. The most affected sectors of transport and heating include a large number of emitters, for example citizens who operate or heat their vehicles or houses with fossil fuels. To ensure that these people do not all have to take part directly in national emissions trading, participation takes place via the companies that place the fuels on the market, that is the obligated parties as per BEHG. They then pass the additional costs on to the consumers.
In comparison, EU ETS 1 has far fewer stakeholders who therefore participate directly. Some companies are covered by both emissions trading systems due to their fields of activity. In this case, there are two mechanisms that rule out double loading. Obligated parties as per BEHG can reduce their surrender obligations when selling fuels to companies already covered by the EU ETS 1. This eliminates the CO2 costs of the fuel amounts for these installations. As a further option, companies covered by both systems can apply to us for compensation.
How is the greenhouse gas emissions target determined?
The amount of greenhouse gases that can be emitted by all participants in national emissions trading (‘cap’) is made up of the base amount and the increment. The base amount results from Germany's reduction obligations under the EU Climate Protection Regulation and concerns all CO2 emissions that are generated outside of European emissions trading 1 - that is within the scope of national emissions trading. It is determined in the Fuel Emissions Trading Ordinance. The cap increase corresponds to the fuel emissions for which a contribution was made in both the EU ETS 1 and the nEHS. These double-balanced emissions are allocated to the EU ETS 1 and not to the German emissions budget, which is why this amount is added to the nEHS cap. It will be published by us in the Federal Gazette.
Since in the initial phase (up to and including 2026) the sale of emission certificates follows the effective demand of the participants in the nEHS, the defined quantity target may subsequently be exceeded. In this case, Germany is obligated under the EU Climate Change Regulation to compensate entirely the resulting deficit.
What fuels are covered by the national emissions trading system?
All fuels in the energy tax act are included in the national emissions trading system. These include petrol, diesel, heating oil, liquefied petroleum gas, natural gas and, since 2023, coal among others. Biomass that does not meet the sustainability criteria is also affected. From 2024, waste will also be included as a fuel.
How high will the CO2 price be?
In order to give all stakeholders planning security during the introductory phase of the national emissions trading system (nEHS), the system starts with a fixed price phase. During this period, the prices for the nEHS certificates (nEZ) are regulated by law.
In 2026, the nEHS certificates will be initially auctioned within a price corridor with a minimum price (55 euros per nEHS certificate) and a ceiling price (65 euros per nEHS certificate). Within this predefined range, the price will be determined by the market, depending on demand. For the volume of emissions remaining in the nEHS after the full implementation of the EU ETS 2 from 2028, nEHS certificates will be sold at a market-based fixed price that is oriented on the prices in the EU ETS 2.
To the topic
How does national emissions trading affect consumers?
Citizens who use fossil fuels for heating or driving, for example, do not participate directly in national emissions trading. Instead, the distributors of these fuels are obliged to participate and pass on their additional costs to consumers.
The rising prices make it more profitable for customers to reduce their consumption - for example by renovating their buildings, switching to an electric car or installing a more energy-efficient and environmentally friendly heating system. This in turn leads to fewer greenhouse gas emissions.
In this way, national emissions trading makes an important contribution to climate protection.
What additional costs does the carbon price cause for consumers?
During the introductory phase, the annual increase in CO2 prices is fixed. In 2026, the nEHS certificates will initially be auctioned and the price will be within a corridor of 55 and 65 euros. Depending on the emissions intensity of the respective fuel, this will result in the additional costs for end consumers in the cent range shown in the figure.
Prices are calculated based on the standard values in Appendix 1 EBeV 2022 (for the years 2021-2022) and Appendix 2 EBeV 2030 (for the period from 2023 onwards) without taking biogenic components into account. For 2026, the prices specified by the price corridor are shown.
Due to the mandatory admixture of biogenic fuels such as bioethanol in petrol or biodiesel in diesel, the CO2 price increase for these fuels is in reality lower than the values shown here, as there is no CO2 price for the biogenic admixture if sustainability is proven. For example, the CO2 price premium for E10 with a biogenic content of 10 percent would be around 1 cent lower in 2025. However, as the biogenic proportions in E10 vary in relation to the individual deliveries, they were not taken into account in this calculation for the purposes of simplification.
Are consumers supported in switching to climate-friendly technologies?
The national emissions trading system will make the use of fossil fuels such heating oil or petrol more expensive.
Households with a low annual household income (up to 40,000 euros) can apply for an income bonus in addition to the baseline funding. Additionally, complete refurbishments to meet efficiency house standards are promoted with loans in combination with a repayment subsidy. Further support for heat insulation can be obtained from the Federal Office for Economic Affairs and Export Control (BAFA).
An energy consultation, which is also financially supported, identifies energy weaknesses in the buildings. The funding database of the Federal Ministry for Economic Affairs and Climate Action signposts consumers to the right offers.
What happens with the revenue from emissions trading?
Revenues flow into the Climate and Transformation Fund (KTF) This means that the nEHS revenues are currently largely used to finance technology funding and climate protection measures in Germany. This includes, for example, the transformation of heating networks, the expansion of the charging infrastructure and the ramp-up of the hydrogen economy. We, the German Emissions Trading Authority, are not responsible for the distribution of revenues.
In addition, electricity price compensation, carbon leakage compensation, and enforcement are refinanced through the revenues from emissions trading.
Will an emissions trading system for heating and transportation be introduced on the European level as well?
Yes, starting in 2028, there will be a European emissions trade for heating, road transport and other sectors. It will be called the European Emissions Trading System 2, or EU ETS 2 for short, and will largely replace the nEHS. Since 2024 already, the businesses affected have a reporting obligation.
In total, the two systems EU ETS 1 and EU ETS 2 together cover around 85 percent of all European emissions, making them a central climate protection instrument of European climate policy.
EU ETS 2 Reporting phase (2024-2026)
The European Emissions Trading System 2 requires participants to purchase an emission permit for every ton of CO2 produced by the combustion of the included fuels. As in the EU ETS 1, emission permits are auctioned on the primary market via a designated platform in a uniform-price procedure.
How does the auction process work?
Similar to the EU ETS 1, the number of emission permits auctioned each time and annually is determined (capped) by the European Commission. The quantity is reduced every year in order to lower greenhouse gas emissions in the long term in accordance with European climate protection targets.
What does the new auction phase in national emissions trading from 2026 mean for consumer prices?
In 2026, emission certificates will be auctioned for the first time in national emissions trading (nEHS). The auctions at the Leipzig-based European Energy Exchange AG (EEX) will begin in early July and are expected to take place once a week until the end of October 2026.
In the 2026 auctions, a price corridor with a minimum price of 55 euros (corresponding to the CO2 price in 2025) and a maximum price of 65 euros per nEHS certificate is set by law. Within this specified range, the CO2 price will be determined by demand at the auctions. If the quantity of nEHS certificates available at the auctions cannot meet demand, nEHS certificates can be purchased at a price of 68 euros in subsequent sales in 2026.
The table below shows the possible price increases in 2026 compared to the current CO2 price level in 2025 of 55 euros. The prices are calculated on the basis of the standard values according to Annex 2 EBeV 2030. Value added tax of 19 per cent has been taken into account. Due to the legal obligation to add biogenic fuels such as bioethanol to petrol or biodiesel to diesel, the CO2 price surcharges for these fuels are actually lower than the values shown in the table, as there is no CO2 price for sustainable biogenic fuels.
| 55 euros | 60 euros | 65 euros | 68 euros | |
|---|---|---|---|---|
| Petrol | +0 ct/l | +1,4 ct/l | +2.8 ct/l | +3.7 ct/l |
| Diesel/Heating oil EL | +0 ct/l | +1.6 ct/l | +3.2 ct/l | +4.1 ct/l |
| Natural Gas | +0 ct/kWh | +0.11 ct/kWh | +0.22 ct/kWh | +0.28 ct/kWh |
Compared to current levels, price increases are therefore possible to a limited extent. This will further strengthen the economic viability of emission-neutral technologies in the building and transport sectors. At the same time, additional revenue will be generated for the German government's Climate and Transformation Fund (KTF), which finances various climate protection programmes. The proceeds from emissions trading are thus returned to consumers – for example, through the promotion of energy-efficient building renovation or electromobility.
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