The EU’s new carbon tax, ETS2, represents a €300 billion opportunity to transition European citizens away from fossil fuels and imported oil, according to a new report by Transport & Environment (T&E).
Between 2026 and 2032, the pricing of carbon emissions on diesel, petrol and heating fuels could raise as much as €300 billion, and T&E recommends giving half of this revenue back to low and middle-income households in the form of financial support to encourage the transition to greener fuels.
The remainder should go towards green infrastructure investment, it added.
ETS2, which comes into effect in 2027, will levy a carbon price on diesel, petrol and heating fuels, alongside its current carbon market for industrial emissions.
Impact on poorer households
Critics of ETS2 have said that such a levy would disproportionately hit poorer households, with T&E calling for targeted financial support for said households, in order to lessen the impact. This could include subsidies for affordable electric cars, as well as better public transport and charging infrastructure.
“ETS2 is a €300 billion opportunity to liberate Europeans of expensive oil imports and reduce pollution from vehicles,” commented Federico Terreni, climate policy manager at T&E. “The social concerns are real but can be addressed by redistributing part of the money, and using the rest to invest in electric mobility and shared transport.”
The EU has set up a Social Climate Fund (SCF) to ensure revenues from the ETS2 are redistributed to poorer households, and T&E is calling on the European Commission to extend loans directly to member states, to enable them to commence implementing policies and measures to support consumers.
Carbon prices
T&E is also calling for reforms to the EU’s Market Stability Reserve to stabilise carbon prices around €55 per tonne of CO2, given that in emissions trading, the carbon price can fluctuate significantly.
‘ETS2 prices will be higher if other policies, such as the EU-level vehicle CO2 standards, national-level measures, or zero-emission zones are delayed or fail to deliver,’ T&E noted. ‘The EU Commission should increase pressure on countries to incorporate new national policies into their National Energy and Climate Plans (NECPS), as well as introduce electrification targets for large fleets, as both offer immense potential to reduce emissions and therefore keep ETS2 prices down.’ Read more here.
