As part of the EU’s “Green Deal” to reach the goal of climate neutrality by 2050, a new Emissions Trading System (ETS2) will be introduced in 2027*, covering carbon emissions from road transport, buildings and small industries. While an important part of the EU’s plan to curb emissions, it will likely impact energy and transport prices, as the costs borne by energy and fuel suppliers are passed on to consumers. Projections vary, but fuel prices could rise by between €0.11 and €0.50 per litre by 2030 due to the ETS2, with wide implications for domestic budgets.

Accordingly, the Social Climate Fund (SCF) has been created to commence in 2026 to cushion the impacts of ETS2 on the most vulnerable groups. While the SCF alone cannot be relied upon to curb energy and transport poverty, if leveraged wisely it can be used to promote green investments with long-term socioeconomic benefits.

This briefing provides an overview of the role of the SCF in alleviating energy and transport poverty in the EU, assessing key strengths, criticisms, and lessons for the UK. It also considers the potential for leveraging environmental revenues to promote the green transition.

*Please note since the paper was written the EU have delayed implementation of ETS2 until 2028.

You can download the full briefing below: