Study on the social impacts of the EU ETS 2 in selected Member States

As part of the EU’s 'Fit for 55' package, a second Emissions Trading System (ETS2) will be introduced in 2027. Covering the buildings and transport sectors, the ETS2 effectively puts a carbon price on fossil fuels used for heating and road transport. To support those most affected by resulting price increases, the Social Climate Fund (SCF) was established. The SCF Regulation sets out how funds are distributed among Member States, defines eligible households, and requires each state to submit a Social Climate Plan (SCP).

The three Member States examined in this study – Bulgaria, Czechia, and Poland – have been particularly vocal in raising concerns about the potential negative effects of the ETS2, at various points advocating for delays in its implementation or stronger price stabilisation mechanisms. The aim of this study is to analyse what groups are likely to be most affected by the ETS2, examine the current draft SCPs, and identify policy gaps. General recommendations for policy design and to address policy gaps include:

• Targeting vulnerable groups remains key: including targeted use of ETS2 revenues to address policy gaps and areas with high savings potentials e.g. the Worst Performing Building (WPB).
• Policy design needs to consider the housing situations of vulnerable households : determining a focus on single family homes (SFH) or multi-family homes (MFH) or whether to allocate funds to support tenants. Focus adjustments needed esp. in Bulgaria and Poland.
• Investments that ensure long-term transformations in the buildings sector towards climate neutrality are central: improvements in energy efficiency and investments into low and zero-carbon technologies.
• Deep retrofitting is needed to ensure long-term resilience and functioning of ETS2: this needs to include extensive up-front financing for low-income households beyond the SCF.