One tonne of CO₂ causes considerable costs — for the economy, society and future generations. While companies often only bear a fraction of these costs today, this will change significantly in the coming years.
The greenhouse effect briefly explained
The Earth’s atmosphere consists mainly of nitrogen and oxygen and around 0.1 percent of other trace gases such as carbon dioxide (CO2), methane and ozone. However, these small quantities of trace gases are quite something, as they are responsible for the much-cited greenhouse effect.
The gases in the atmosphere allow a large proportion of short-wave solar radiation to pass through. It penetrates to the earth’s surface and warms it up. The long-wave heat radiation is reflected by the earth’s surface and absorbed by the gases in the atmosphere.
Water vapor, methane and carbon dioxide in particular absorb some of the heat radiation emitted by the Earth’s surface and therefore reduce the amount of heat emitted into space. Without this natural greenhouse effect, the earth would be iced over.
However, the concentration of greenhouse gases has been rising since industrialization. As a result, the earth’s surface is becoming increasingly warmer. The rise in temperature leads to a new equilibrium being established at a higher temperature level. [1]
Social damage costs of one ton ofCO2 emissions
A higher temperature level, i.e. a changing climate, has an impact on almost all areas of life. Heatwaves, droughts, rising sea levels and other extreme weather events affect people and animals. They threaten biodiversity, human health, the availability and quality of fresh water, endanger living space and threaten the economy and agriculture. The cost of damage caused by greenhouse gas emissions to individuals and society is immense. [ 2] In its UBA Handbook on Environmental Costs published in February 2026, the German Federal Environment Agency (UBA) estimated the global damage caused byCO2eq emissions from Germany alone at 647 billion euros in 2024, provided that the damage to future generations is taken into account in the same way as for our current generation. [3]
The social cost of carbon (SCC) is used to quantify the damage caused to society by greenhouse gases. This is an economic estimate. It quantifies the future economic damage caused by an additional tonne of CO₂eq emissions. [4]
In its current Environmental Costs Manual, the UBA calculated a cost rate of €990 for the emission of one tonneof CO2eq in 2025 if the well-being of current and future generations is weighted equally. If the well-being of today’s generations is weighted more heavily than that of future generations, the value is € 345 per tonne of CO₂eq in 2025.
The politicalCO2 price
The current prices for a tonne ofCO2eq in Germany and everywhere else in the world are currently well below the actual damage costs. The idea of charging the polluters for each tonneof CO2eq emissions is intended to create incentives to reduce emissions. HowCO2 prices are set varies around the world. The EU has been using the emissions trading scheme (ETS 1) since January 2005. Since then, polluters of emissions from the electricity sector and energy-intensive industry have been asked to pay. Since 2012, intra-European air traffic has also been covered and, since 2024, maritime traffic as well. From 2027, a new emissions trading scheme (ETS 2) is to be introduced in the EU, which will then also cover emissions from the transport and building sectors.
In Germany, one tonneof CO2eq cost 55 euros in 2025. In 2024, it was 45 euros per tonne. These prices are set by politicians. They bear no relation to the actual damage costs caused by a tonne ofCO2eq. From 2027, there will no longer be fixed prices. Instead, the price is to be set freely on the market via a new EU emissions trading mechanism(ETS 2) — comparable to trading shares on the stock exchange. To this end, a certificate must be purchased for every tonne ofCO2eq produced in the EU. However, only a limited number of certificates are available: The EU has earmarked just over one billion certificates for 2027. A short supply is therefore likely to be met by higher demand. Model calculations by the Institute of Energy Economics at the University of Cologne (EWI) estimate the price per tonneof CO2eq for the year 2035 at over 200 euros. [5]
Impact on industry and consumers
The consequences of risingCO2 prices are obvious and affect both industry and every end consumer: everything becomes more expensive. The EWI provides an example of this: In 2025, the price of a tonne ofCO2eq in the transport and building sector was €55/tCO2eq. According to the EWI’s calculations, the price will rise to €120/tCO2eq in 2027 and will reach €206/tCO2eq in 2035.
Exemplary developments up to 2035:
- Heating oil: +50 %
- Natural gas: +32 %
- Fuels: +26–27 %
However, the price increase of the certificates depends on how many tons ofCO2 are actually emitted. If emissions fall, this is not only good for the climate, but also for your wallet. Because if the demand forCO2 certificates falls, their price also falls.
The fact that the emissions trading system (ETS 1) is working is demonstrated by the decline in emissions from industry, aviation and maritime transport, as it has already been working for many years. Emissions in these sectors have fallen by 48 percent across the EU. There is good reason to hope that the new ETS 2 emissions trading system, which includes transport and buildings, will also reduce the amount of greenhouse gases here.
However, sufficient political instruments must be available so that end consumers can gradually afford to switch to climate-friendly alternatives.
Conclusion
The actual costs of greenhouse gas emissions are currently significantly higher than the CO₂ prices. However, the further development of emissions trading and rising prices will increasingly close this gap.
For companies, this means that emissions are increasingly becoming a measurable economic factor. Those who create transparency at an early stage can manage costs better and reduce risks.
[1] https://www.umweltbundesamt.de/service/uba-fragen/wie-funktioniert-der-treibhauseffekt
[2] https://climate.ec.europa.eu/climate-change/consequences-climate-change_de
[4] https://19january2017snapshot.epa.gov/climatechange/social-cost-carbon-fact-sheet_.html
[5] www.ewi.uni-koeln.de/cms/wp-content/uploads/2025/04/EU-ETS2_Endbericht.pdf
