A socially just decarbonisation of Europe’s heating and mobility sectors

In early 2023, the European Commission passed landmark legislation to introduce an emissions trading system for the buildings and road transport sectors, together with a new Social Climate Fund. adelphi investigated these legislations and outlines how EU Member States can effectively put them into practice. 

To achieve Europe’s 2050 climate neutrality goal and to reduce emissions by up to 55 % by 2030, the European Commission has established a new emission trading system (ETS) for the buildings and road transport sectors – the ETS 2. These sectors are responsible for a significant share of climate-damaging emissions and so far, not much has been achieved in reducing them.

The rise in energy costs from the ETS 2 introduction will impact households across Europe, especially the countries of Central and Eastern Europe – Romania and Poland, among others. Therefore, the ETS 2 is paired with the Social Climate Fund (SCF), a mechanism to channel a share of revenues from ETS 2 allowances to those strongly affected and in need of support. To receive SCF funding, EU Member States must prepare Social Climate Plans and co-finance them. 

Why Central and Eastern Europe need priority support from EU Member States

In the past, in Central and Eastern Europe, massive industrialisation programmes were undertaken that relied on the construction of multi-family panel building blocks that were assembled fast but required high amounts of energy for heating. The fall of communism resulted in property transfers, so that residents of such multi-family apartments became the owners who can now rarely afford the thermal rehabilitation of their homes necessary for decent living conditions. 

adelphi, together with partners from Öko-Institute, Wise-Europe and CDS, conducted the study “Putting the ETS 2 and Social Climate Fund to Work: Impacts, considerations, and opportunities for European Member States” to provide guiding information for those responsible to implement the SCF. The responsible team examined patterns of vulnerability to the carbon price across Europe and which indicators and analyses can be used to identify vulnerable groups.

The findings show that energy poverty is prevalent in lower-income countries across the EU Member States, whereas transport poverty levels are similar across Europe. Transport poverty means a lack of access to adequate transport services or the inability to pay for those. Households affected by energy poverty are typically in the bottom 30% of income distribution. Higher-income deciles affected are common in countries such as Poland and Romania. 

The carbon pricing mechanism comes with challenges and opportunities

adelphi considers linking these two policies a chance for transforming Europe, incentivising consumer behaviour and sparking low-carbon investments, both in the private and public sphere. The Fund will help finance long-term structural investments such as the integration of renewable energy, the renovation of buildings, and the reinvention of the use of public transport and mobility services. 

But here is the challenge: In order to effectively implement the Social Climate Fund, each EU Member State government needs to find out exactly who is most impacted by increasing energy prices and how to reach those groups with structural investments and direct income support. What’s more: The Social Climate Fund is set to start operating in 2026, meaning that the Social Climate Plans need to be developed and submitted by mid-2025.

Stakeholder engagement and communication are key for successful implementation

In the study “Putting the ETS 2 and Social Climate Fund to Work: Impacts, considerations, and opportunities for European Member States”, adelphi did not only search for nationally appropriate measures and look at types of measures and investments that should be funded, but also investigated how these can be designed to target vulnerable groups. The team further explored how other jurisdictions designed similar measures and what can be learned from their experiences, both within Europe and internationally. Based on this, adelphi also prepared a policy brief called “Making the ETS 2 and Social Climate Fund Work: Guidance for National Policymakers”. 

Drawing on the findings, EU Member States are advised to undertake a thorough vulnerability analysis to then design a set of measures tailored to their national situation. They should also take a look beyond their borders for best-practice examples to adapt them to their respective national context. At the same time, the European Commission should provide guidance so that EU Member States can develop effective targeting strategies in line with the objectives of the Social Climate Fund. 

Planning and implementing these measures will not work without the help of actors at the sub-national level, such as municipalities, civil society groups, and other local stakeholders. They need to be engaged right from the start to understand the new carbon pricing mechanism and contribute to the design and development of effective policies and programmes. 

The time for developing Social Climate Plans is scarce, yet the pairing of the ETS 2 with the Social Climate Fund might be a crucial measure to help tackle the root causes of energy and transport poverty across Europe, so that no one is left behind.