Impacts Considerations, and Opportunities for European Member States

Putting the ETS 2 and Social Climate Fund to Work

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In early 2023, landmark legislation was passed by the EU, establishing a new emissions trading system (ETS 2) for the buildings and road transport sectors. As the resulting rise in energy costs is expected to have uneven social impacts, the ETS 2 is paired with the Social Climate Fund, a mechanism to channel a share of revenues from ETS 2 allowances to the most vulnerable.

The ETS 2 carbon price is scheduled from 2027, and the SCF from 2025, setting an ambitious timeline for implementation. Member States need to develop national Social Climate Plans, which entail analysing patterns of vulnerability and developing a set of nationally appropriate measures. This report contributes to the discussion of the ETS 2 and Social Climate Fund implementation by a) examining the rules and processes outlined in the legislation; b) analysing national patterns of impacts and vulnerability; and c) discussing key policy design challenges in the light of international good practice.