Dozens of organisations call on the European Union to prepare for the launch of the  Emissions Trading System for road transport and buildings (ETS2) by tackling energy and transport poverty now through a lending facility that will be financed with future ETS2 revenue. Today (Thursday 13 March 2025), a coalition of 29 climate and civil society organisations together with stakeholders representing progressive industry, have called on policymakers to establish a lending facility for revenue generated by the forthcoming EU Emissions Trading System for road transport and buildings (ETS2).  In a letter organised by Carbon Market Watch, Transport and Environment and Germanwatch, the signatories call on MEPs, the European Commission and member state governments to ensure that implementation of ETS2, a key element of the EU’s ‘Fit for 55’ package, is socially just while maintaining its needed climate impact. 

Social Climate Plans deadline fast approaching

By reducing the total number of pollution permits available for trade year by year, ETS2 aims to incentivise and facilitate cleaner technology choices for consumers, while decarbonising buildings and road transport in a cost efficient manner. The ETS2 also provides an important source of financing for climate and social measures in EU member states by channeling its revenue through the Social Climate Fund (SCF) scheme. As the June 2025 submission deadline for Social Climate Plans – which outline how member states will spend their SCF allocation to combat transport and energy poverty – fast approaches, it is time to consider how and when the remaining ETS2 revenue should be spent to maximise the benefit to people and the climate. Signatories believe that to better prepare member states for the implementation of ETS2, early access must be granted to revenue before the system begins in 2027.  Currently the EU-27 will only have access to a limited €4 billion of the Social Climate Fund pot in 2026, a sliver of the €86.7 billion total envisaged for the SCF between 2026 and 2032, including member state co-financing of 25%. Remaining ETS2 revenue is predicted to be worth nearly €200 billion between 2027-2032, considering a price of €45 per tonne of CO₂.  Introducing a lending facility would increase the amount currently foreseen for the preparation of ETS2 by extending loans to member states, guaranteed by future ETS2 revenue for investment based on the SCF spending principles, before 2026.  Carbon Market Watch’s policy expert on EU carbon markets Eleanor Scott said, “Allowing member states to spend ETS2 revenue as early as possible on combatting energy and transport poverty in line with the aims of the Social Climate Fund, is an important step in preparing for the introduction of this crucial climate instrument.  “The more clean energy alternatives put in place for lower income groups before the ETS2 begins in 2027, the fairer the system will be and the greater the social acceptability.”

How the lending facility could work

Loans would be recouped from future guaranteed ETS2 revenues, which start to come in each year as of 2027. To provide these loans, potential options include the undersubscribed loan compartment of the Recovery and Resilience Facility (RRF) or EU Cohesion Funds.  An alternative is to “frontload” the revenues using an intermediary such as the European Investment Bank (EIB) or another public institution. The EIB could provide member states with low-interest loans which would be repaid via ETS2 revenue resources. Pre-access to future ETS2 revenues will allow member states to provide grants and direct investment for renewable heating and cooling systems and zero emission transport options for those in energy and transport poverty before the ETS2 impacts households.  Eleanor Scott said, “Many member states have voiced concerns about the social impacts of ETS2. We need to use all the tools at our disposal including granting early access to ETS2 revenue to ensure that vulnerable people do not get left behind.”  Economic growth can be boosted through increased investment, while also encouraging acceptance of the new ETS2 emission trading system among citizens and national governments. This will ensure a smoother and more effective implementation of ETS2 and play an important role in enabling a just climate transition.