Luke Haywood, Climate and Energy Policy Manager, and Hannah O’Sullivan, Associate Director of Climate and Energy Communications: The European Environment Agency will discuss ensuring a fair distribution of future ETS-2 revenues.
In less than a year, billions of euros from the Social Climate Fund (SCF) will land in the pockets of the EU government, but in some countries, heating and transport (ETS-2) to start operations. ) are already asking for delays in carbon pricing. 2027. It is important for policymakers to stick behind one of the most important elements of European green trading.
Two factors are important for the ETS-2 to function. First, revenues need to be distributed fairly, and second, other policies to reduce fossil fuel demand must complement EU carbon prices.
Why should income be returned to people?
ETS-2 leads the “paying the polluters” principle to action, with the largest polluters paying the most. However, in many low-income European households, this cost can be a huge burden. This is why SCF was created to fund strategies to support disproportionately affected households.
Funded primarily by revenue from ETS-2, SCFs can be used in a variety of ways, ranging from expanding existing transportation services to direct income support for all households. This is one of the advantages of carbon prices. Revenues can be used to address some of the costs of leaving fossil fuels.
Many households experiencing energy and transport poverty are disproportionately affected by ETS-2. Targeted support schemes are important to help them, as they are likely lacking a way to move from fossil fuels alone.
One-stop shops to provide local support and access to information, subsidies to replace fossil boilers with heat pumps, or access to discounted public transport all will result in the economic burden of decarbonisation for low-income households. It can contribute to reducing it.
Several countries with carbon pricing systems already in place have chosen climate dividend schemes to construct and transport emissions. Annual direct payments to all citizens provide relief when carbon prices are high, providing financial resources to support households in transition from fossil fuels, and increasing public confidence in the carbon pricing system .
This works well in Austria, for example, when carbon pricing revenues are returned with direct payments per year. The scheme allows for taxation of payments to distinguish incomes as the Austrian scheme does, and by the quality of public transport, resulting in higher payments for people living in rural areas.
Citizens ultimately pay carbon prices, so paying revenue back to them, not large corporations, is the most socially fair distribution.
ETS-2 is not a silver bullet
If fossil fuels are in high demand, the price of the ETS-2 will be higher. Therefore, policies that reduce the demand for fossil fuels through means other than ETS-2 have a dampening effect on prices.
For example, heavy investments in urban bicycle infrastructure reduce the costs of rural citizens who still rely on cars but don’t have the resources to buy electric vehicles to reduce transportation fuel demand. Masu.
Regulatory policies that reduce building and transport emissions are the ETS, especially when Germany, France and Italy account for half of all ETS-2-related emissions in the EU as a whole, when enacted by very large-scale polluting countries. -2 Reduce prices.
Other national policies can also reduce demand. Carbon price floors are the smallest carbon for transportation and heating as the ETS-2 price drops below that, as the UK still pioneered to match ETS-1, so when ETS-2 prices drop below that, the minimum carbon for transportation and heating You can set the price. european union.
This increases ETS-2 price predictability, supports decarbonization investments, and reduces carbon price levels and volatility in the long term.
The process of establishing a national social climate plan to determine ETS-2 revenue expenditures through the Social Climate Fund will include both sensible distribution of revenue and complementary policies including price levels, and the ability to provide the functionality of ETS-2. It provides a good opportunity to consider how to work. in the first place.
Expansion of carbon pricing to heating and transport fuels will be a litmus test of EU climate policy, as energy prices could rise if appropriate support measures are not in place. Since the majority of building and transport emissions are produced in Germany, Italy and France, complementary measures will be taken to determine the EU-wide emissions price.
In countries with high energy and transport poverty rates such as Bulgaria, Hungary and Slovakia, helping households to phase out fossil fuels permanently must be a priority.
The editor of this opinion is created in collaboration with European Sustainable Energy in 2025. For open calls, see ec.europa.eu/eusew.
Recommended links
https://climate.ec.europa.eu/eu-compact/eu-emissions-trading-system-eu-ets/ets2-buildings-road-transport-and-additional-sectors_en https://icapcarbonaction.com/en /ETS/Austria and the National Emissions Trading System https://eeb.org/work-areas/climate-change/ https://energy-poverty.ec.europa.eu/epah-indicators
About the author
Luke leads EB’s climate and energy team and is currently involved in the Life Effect Consortium, promoting understanding of ETS-2 and capacity building for civil society. Prior to joining EEB, Luke was a policy analyst and climate economist at the Mercator Institute on Global Commons and Climate Change (MCC) in Berlin. He previously worked as an economist at the Institute for Economic Co-operation and Development (OECD) in Paris and the Institute for the German Economic Studies (DIW) in Berlin.
He holds a PhD in Economics from the Paris School of Economics, a Masters in Economics, and a Bachelor of Arts in Philosophy, Politics and Economics from the University of Oxford.
Hannah works in EEB’s climate and energy team communications focusing on carbon pricing and renewable energy.
Her previous communication experiences in NGOs and the media have led her to lie in energy politics in central and eastern Europe. She has a double MA in her studies in Central and Eastern Europe, Russia and Eurasia.
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Neither the European Commission nor is it liable for any use that may be made from the information in the article by anyone acting on the Commission. The only opinion expressed is the author and should not be considered representative of the official position of the European Commission.
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