Several EU countries have voiced reservations about the upcoming EU’s carbon pricing scheme (ETS2), a key climate policy tool that should help us cut emissions in transport and heating. Calls to delay or weaken the system are growing. Yet a simple, effective solution is flying under the radar: direct payments to citizens.

In our new policy briefing, we argue that direct payments are essential to making ETS2 fair, transparent, and politically viable. These payments ensure support reaches all those affected by higher carbon prices, especially if prices rise, and advance social justice. Yet this solution is rarely considered in practice.

Direct payments make carbon pricing progressive, benefiting low- and middle-income households. They prevent the public from viewing ETS2 as just another tax.

With national Social Climate Plans due by June 2025, now’s the time to put this solution on the table.

Alongside investments in clean alternatives like heat pumps and public transport, direct payments can protect vulnerable households and all those affected by high prices.

Carbon pricing without maximal transparency about revenue use is a great political risk.