This report builds on a previous report in 2023, the ‘Green Heat for All 2’ report. Since the last report the most significant change to the decarbonisation of buildings landscape is the European Union’s expansion of its carbon pricing efforts with the introduction of a second Emissions Trading System (ETS2), aimed at reducing emissions in sectors not covered by the original ETS1.

ETS2 will be an important step in driving the acceleration of decarbonisation. However, while carbon pricing is expected to be an efficient decarbonisation policy it can have regressive effects, including putting an unintended burden on consumers, particularly vulnerable consumers.

To mitigate some of the social impact of rising energy costs, the EU has established a Social Climate Fund to support vulnerable populations during the transition.

This study analyses the current funding and incentives in Member States to explore the current gap in funding for heat pumps that would need to be paid by households. It then models four policy scenarios for allocating SCF and ETS2 funds through subsidies and zero-interest loans to promote heat pump adoption. The scenarios assess how different funding mixes could impact installation rates, aiming to make heat pumps more financially accessible for households. These scenarios provide a comparison across Member States and highlights where there may be a funding gap. In reality, there will be a range of options for how to use the SCF and ETS2 funding pot and Member States will be able to design their use of the funding according to the characteristics and need of their population.