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January 1, 2027: The End of the European Union?

Writer's picture: Andrea RonchiAndrea Ronchi

Will the European Union Collapse in 2027? Less than two years to act on the foundations of the Green Deal, with ETS2 at the forefront.


1/1/2027: the End of EU? - CO2 Advisor
1/1/2027: the End of EU?

Emission Trading 2 (ETS2) Launch in 2025, Repercussions from 1/1/2027

In January 2025, almost completely unnoticed by the press and so-called energy sector specialists, the most dirigiste and damaging of European green policies, Emission Trading 2, was launched. Do not be deceived by the term—this has nothing to do with emissions trading. It is a horrendous Carbon Tax in disguise, as previously explained in this article.

For now, obligations are limited to reporting requirements. However, starting from January 1, 2027, the market phase will begin, meaning that the new year will greet us with fuel prices at the pump increasing by about €0.20 per liter and heating gas and industrial usage costs soaring by over 30%. Let’s remind our readers that the Yellow Vests protests in France erupted in 2018 over a carbon tax increase of just €0.04 per liter (one-tenth of what awaits us in 2027), which was subsequently withdrawn due to violent demonstrations. And it doesn’t stop there—distribution companies fear price hikes of up to €0.80 per liter by 2030. Even worse is the grim fate of these newly collected financial resources.


How a "Pure" ETS System Works

A truly "pure" Emission Trading System (ETS) would function as follows: the costs incurred by entity 1 become revenues for entity 2 through the exchange of emission allowances that are initially allocated for free and gradually reduced over time. The principle is simple: "who emits CO2 pays," while "who reduces/captures CO2 gets paid." The financial resources remain within the system among the involved entities, and funds flow where the marginal cost of reduction is lowest, allowing the market to optimize resources efficiently.


ETS2 = A Carbon Tax in Disguise

Under ETS2, however, allowances will be allocated at a cost through auctions managed by Member States. And where will the money go? States will collect the revenues and then transfer them to the European Union, which will use them to finance five Brussels-managed funds:

  • Social Climate Fund (EU)

  • Innovation Fund (EU)

  • Modernization Fund (Member States + EU oversight)

  • Just Transition Fund (EU)

  • Resilience and Recovery Facility (EU)

This completely undermines the efficiency principle that a market-based system guarantees. Instead, the EU will use these funds to finance irrational and cost-ineffective "green" projects. Need an example? Let’s examine what happens when the government spends EU and Italian taxpayer money.


The State Spends € 10,500 to Reduce 1 Ton of CO2, Companies Do It for € 70


The Zero Carbon Policy 2024 study by the Energy Strategy Group at Politecnico di Milano reveals that the Italian government allocates around €127 billion annually for decarbonization investments, reducing about 12 million tons of CO2 per year. This means taxpayers are funding a cost of €10,500 per ton of CO2 reduced, whereas the ETS1 system allows companies to meet targets at a price of less than €70 per ton of CO2. You read that correctly: the State spends €10,500 where companies achieve the same result for €70. Such transition costs are unsustainable.



Energy Strategy Group - Politecnico di Milano: Annual decarbonization investment in Italy
Energy Strategy Group - Politecnico di Milano: Annual decarbonization investment in Italy

State vs. Companies: How much is spent per ton of CO2 reduction?
State vs. Companies: How much is spent per ton of CO2 reduction?

Emission trends, targets, and forecasts for Italy - CO2 Advisor
Emission trends, targets, and forecasts for Italy

Let’s break this down further. Today, Italy emits 383 million tons of CO2 per year. By 2030, we must reduce this to 235 million tons—a reduction of 148 million tons in just five years. This means cutting 30 million tons per year (when we have never exceeded 12 million per year in reductions). At the rates paid by the State and EU, this would require an allocation of €1.554 trillion over five years for the Green Deal, equating to €30,000 per Italian citizen. And this is just for Italy—imagine the costs for less energy-efficient countries like Poland, Bulgaria, and Romania.

The Politecnico study also reveals that in 2023, the most inefficient government measures included real estate energy efficiency incentives (SuperBonus) and electric vehicle subsidies.


The Green Deal Is Not Just About EVs and Green Buildings

Today, the green agenda has entered public debate mainly due to one of its many irrational, costly, and socially damaging policies: the ban on internal combustion engine car production by 2035 and the penalties for manufacturers who fail to meet electric vehicle quotas.

As I wrote in my book I mercati della CO2, as early as 2023, a Tesla Model 3 vs. a Peugeot 308 diesel, considering the full life cycle (manufacturing, 150,000 km usage, and disposal), entails an extra cost of €19,240 for the full-electric option while saving just 10 tons of CO2—that’s nearly €2,000 per ton of CO2.

Residential renovation incentives fare no better in cost-effectiveness.

This does not mean that transitioning to EVs and improving building efficiency is inherently wrong. However, it should be the market that rewards the most efficient technologies at any given time, not bureaucrats at national and European levels dictating planned economy projects.


ETS2 Strips Member States of Their Fiscal Sovereignty


Beyond its financial inefficiencies, ETS2 also marks the end of the European project as we know it and provides a final boost to so-called populist parties across the continent. The EU has circumvented a fundamental principle of its founding treaties: Member States’ fiscal sovereignty. The Green Deal, as envisioned by European Greens and Socialists, is nothing more than a pretext to subvert the European Union’s governance structure.

The year 2027 is particularly crucial: France will hold elections, and ETS2 will take effect just before. Marine Le Pen is poised for a landslide victory.


How to Save the European Union?

Time is running out to stop what appears increasingly unstoppable. At a minimum, we must:

  1. Delay and completely revise ETS2.

  2. Reform ETS1, restoring its original market-based mechanism.

  3. Leverage Article 6 of the UN COP to reintroduce CO2 credit trading in European ETS markets, promoting genuine technological and geographical neutrality—ending subsidies to underdeveloped states and instead funding concrete projects both at home and globally.

  4. Scrap and completely rewrite the Green Claim Directive.

  5. Scrap and overhaul the EU Carbon Neutrality Regulation.


Future articles will delve into each of these five critical actions.


What About the US Under Trump?

Finally, renegotiating a complete shift in priorities at the United Nations is essential if we wish to remain part of the COP framework, which increasingly appears to be a China-led consortium imposing Beijing’s agenda on the rest of the world. Seen from this perspective, the US withdrawal from the Paris Agreement may have been the wake-up call needed to rouse the world and curb China’s ambitions.

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