Heating Up Inequality?

The EU’s second Emissions Trading System (ETS2) will apply a uniform carbon price to fossil fuels used in buildings and road transport, affecting around half of the EU’s 188 million house-holds that rely on fossil heating. At a likely entry carbon price of 60 EUR/t CO₂, average annual heating costs are expected to rise by around 60 EUR per household. Most households are like-ly to absorb these increases, but a smaller group – mainly low-income, often elderly home-owners in Eastern and Southern Europe – faces potentially unmanageable cost burdens. ETS2 revenues should therefore be used for targeted compensation schemes through national So-cial Climate Plans that address these vulnerable groups. Although such measures can ease distributional impacts, ETS2 revenues will be insufficient to finance the investments required to shift away from fossil heating. Additional funding will therefore be needed.