EU plans ‘climate action social fund’ to shield citizens from rising carbon prices

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The European Commission will set up a fund to support vulnerable households if their fuel bills increase as a result of its plan to expand carbon pricing to transport and buildings’ heating systems, the EU’s climate chief said on Wednesday (9 June).

The Commission will next month propose a package of policies to slash planet-warming emissions faster this decade, including fuel tax changes and tougher renewable energy targets.

Among the proposals being considered is a CO2 emissions trading system for transport and heating systems in buildings.

The plan has stoked concerns from some EU countries and lawmakers in the European Parliament, who say it could hike fuel costs for citizens, hitting low-income and vulnerable groups hardest.

A climate action social fund

EU climate policy chief Frans Timmermans on Wednesday said that any such proposal would be accompanied by measures to mitigate the social impact.

“Rest assured, if we do take this step and if households face growing costs as a result, we will ensure that a social mechanism, a climate action social fund, is in place that can compensate for any possible adverse effects, especially for our most vulnerable citizens,” Timmermans told the European Economic and Social Committee, an EU body.

“Part of the revenues generated from emissions trading in road transport and buildings could be put into a dedicated fund, so that Member States can use those revenues to compensate the cost of this transition to vulnerable citizens,” he added.

“We are seriously working on proposals for that,” Timmermans assured, promising that the Commission “will hardwire social fairness in these proposals”.

Channelling carbon revenues back to citizens could help them switch to green alternatives such as zero-emissions home heating systems or electric vehicles that will become cheaper to run over the years, Timmermans said.

The EU already uses an emissions trading system, or carbon market, to put a price on pollution in the power sector and industry. The scheme forces power plants and manufacturing facilities to buy a permit for every tonne of CO2 they emit.

Buildings – which produce 36% of the bloc’s CO2 emissions with many heated by fossil fuels – and transport would be in a new, separate system.

The Commission’s upcoming proposals aim to ensure the EU meets a target to to cut its net greenhouse gas emissions at least 55% by 2030 against 1990 levels.

That goal will require an extra 10-percentage-point cut in combined emissions from sectors not currently covered by the EU carbon market – including transport, buildings and agriculture.

But Timmermans was also clear that this will require sacrifices. “Don’t create the illusion with people that it’s going to be easy,” he told members of the EESC in Brussels.

“If you tell them it’s going to be easy now, they will be disappointed later. Better prepare them for what is going to be a tough transition. We need everyone to come along, we need everyone to do their part.”

EU carbon prices rose above €50 per tonne for the first time las month, boosted by the bloc’s landmark climate law, which introduces a legal obligation to reach net-zero emissions by 2050, and sets a tougher climate goal for 2030.

This has triggered concerns among industry groups worried about rising pollution costs and EU countries like Poland, which have asked the EU to intervene.

The Green Brief: Beware the carbon price backlash

Concerns about the “just transition” to a green economy are likely to resurface after the price of carbon on the EU’s emissions trading scheme hit €50 per tonne for the first time this month.

[Edited by Frédéric Simon]