Assessing distributional and environmental impacts of ETS2 and potential mitigation under the Social Climate Fund

Abstract

Extended abstract 3-290-26 This submission provides an ex-ante assessment of the distributional impacts of the EU Emissions Trading System for buildings and road transport (ETS2) on households across the 27 EU Member States and assess the role of the Social Climate Fund (SCF) in mitigating these impacts. Carbon pricing in these sectors is central to achieving EU climate neutrality but raises concerns about regressive effects and affordability for vulnerable groups. This presentation addresses methodological challenges in identifying low-income households affected by energy and transport poverty. The work outlined in contains two main parts: First, using the Green EUROMOD microsimulation model based on EU Household Budget Survey (HBS) and EU Statistics on Income and Living Conditions (EU-SILC) data, it estimates household level impacts of ETS2 related price increases. Based on these results, the presentation identifies population groups most exposed to ETS2. It documents substantial heterogeneity across income groups, household characteristics, and countries, driven by differences in consumption patterns, heating technologies, and transport dependence. In the second part, the presentation simulates hypothetical mitigating measures eligible under the SCF, covering both buildings and transport. Measures include direct income support, renovation strategies, replacement of fossil heating systems with heat pumps, electric vehicle social leasing and purchase subsidies, and public transport vouchers. Their distributional impacts, effectiveness in alleviating ETS2 burdens, greenhouse gas reduction potential, and cost effectiveness are compared across Member States. By jointly assessing distributional and environmental outcomes, the paper contributes to the design of socially fair and efficient climate policy packages and provides decision-makers relevant evidence to support the strategic use of SCF resources alongside the implementation of ETS2. Read the full abstract. Download presentation.