28th Jan 2022

MEPs raise concern over extending ETS to homes and cars

  • Currently some 34 million Europeans are unable to warm their homes adequately (Photo: GollyGforce)
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MEPs on the environment committee have raised the alarm over the possible implications that new climate policies - aimed at cutting emissions from cars and buildings - may have on poorer households.

During a debate on Thursday (9 September), MEPs argued that expanding the Emissions Trading System (ETS) to include road transport and the heating of buildings risks increasing living costs for the most vulnerable households and creating social unrest.

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As part of its complex 'Fit for 55' package, the European Commission proposed to use price signals to reduce emissions from road transport and buildings - two sectors that have seen emissions increase steadily over the last years.

Under this proposal, the idea was to create a new separate carbon market from 2025 to 2032 for the building and road-transport sectors - which currently fall under the EU's effort-sharing regulation.

Unlike the ETS cap-and-trade scheme, where a price is put on carbon emissions, and emission allowances are then auctioned, the EU's effort-sharing regulation sets out national targets based on GDP-per-capita, covering sectors such as agriculture and waste management.

Both are essential EU's climate policy instruments to reduce carbon emissions. However, according to the commission, sectors under the ETS are decarbonising faster than those outside this scheme.

For Green MEP Michel Bloss, the proposal for the ETS extension, as it stands currently, is "socially unfair and environmentally deceiving" because it will have a limited effect on reducing emissions while putting a lot of burden on poor households.

"We are asking households to pay the CO2 price while we give it for free to industry," he said, referring to the free allowances foreseen for sectors where there is a risk of carbon leakage. Under the ETS revision, free allowances will only be phased out from 2026.

Where does money come from?

The proposal to extend the ETS to cars and buildings is coupled with a new fund to support the most vulnerable households. But MEPs see it as insufficient and many oppose its design.

The proposed fund could raise €72.2bn (or €144.4bn with national co-financing). That means that the most vulnerable households could receive some €3,200 to, for example, change the heating and cooling system or buy an electric car, according to the commission's estimates.

However, part of the fund would come from expected revenues from the inclusion of buildings and road transport under the ETS scope.

Socialist MEP Jytte Gutland called on the commission to revise the proposal, warning that the money put into the fund is coming from "a source that risks worsening inequality and energy poverty in the EU".

"The fund itself is a good idea, but we need to think where the money comes from," she said.

Currently, there are some 34 million Europeans unable to warm their homes adequately.

"We need to be very careful if we want to introduce cars and housing in this system because we do not want to end up penalising those who want to adapt but cannot," said fellow MEP Javi López.

Meanwhile, conservative MEP Alexandr Vondra (European Conservatives and Reformists) said that the EU is playing with fire with such initiatives.

"Once people start paying their bills, they will blame the EU. And this can have a devastating impact on the image of the EU among our societies, in particular among the most vulnerable," he said.

These concerns have been also echoed by consumer and environmental groups, who see the ETS extension as the wrong approach to reduce emissions in these sectors.

ETS expansion to homes and cars raises bills fears

The EU wants to become the first continent to reach net-zero. But revenues from the Social Climate Fund will be low, and not commensurate with the task of renovating 35 million homes or getting millions of cars off the road.


Why 'Fit for 55' isn't fit for purpose

In a worst-case scenario, the EU's climate policies would exclude developing nations from international trade, forcing them to trade with each other, forming economic and environmental 'ghettos' while the wealthy West enjoys the benefits of free trade and clean energy.


How to make 'Fit for 55' fit for citizens

The first battle of the 'Fit for 55' package has to be fought on the home front. Europe will also have to win the battle for the hearts and minds of citizens, mindful of the 'yellow vests'-style protests.


'Fit for 55': what is it, and why now?

The European Commission will unveil its 'Fit for 55' package of revised climate and energy laws this week. We take a look at what is expected to be in it - and why it matters.

Timmermans: high energy prices must speed up transition

High energy bills are already affecting businesses and households across the bloc. But only about one-fifth of the price increase can be attributed to the CO2 prices rising, EU's climate chief Frans Timmermans told lawmakers


An inflation surge, but (some) economists warn on raising rates

Rising prices have fuelled the debate among economists about inflation risk - with some arguing that central banks should increase interest rates, while others urge governments and central banks to adopt more precise and targeted measures.

Lawyers threaten action over new EU gas and nuclear rules

Environmental lawyers are threatening to take legal action against the European Commission if gas is included in the EU guidelines for sustainable finances. But the draft taxonomy has also triggered discontent among some EU national capitals and MEPs.

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