ETS expansion to homes and cars raises bills fears

"Reeaaally Epic" was how commission vice-president Frans Timmermans described the massive two year-long effort that led to this package. If everything goes according to plan, the proposals will come into effect in 2024.

A market-based solution

At the heart of the proposal is a revision and expansion of the EU's carbon emissions trading scheme (ETS).

Currently, the ETS scheme limits emissions in the power sector, and manufacturing industry, and aviation operating in Europe. Now it is set to expand to include housing and shipping, and impose stricter limits on emitters.

According to the EU, infrastructure covered by the ETS reduced emissions by about 35 percent between 2005 and 2019.

However, transport and housing have lagged behind their emission-reduction goals. Expanding the carbon market to include these sectors could be an effective solution.

In expectation of this further tightening by the EU, prices on the carbon markets have already doubled, to around €50-a-tonne, since April.

According to a Bloomberg report, some analysts expect prices to rise to €100 by the end of this year. This will set up the industry for a reduction of 60 percent.

Low-income households hit disproportionately

The expansion of the ETS scheme to include housing and transport will significantly raise fuel- and energy prices for households in the coming years.

Following a similar scheme, Germany earlier this year already introduced carbon-pricing on housing and transport.

In assessing the impact the German Institute for Economic Research (DIW) reported that higher carbon prices in the housing and transportation sectors will disproportionately affect low-income households.

"Extending the carbon market to heating and fuel gave us the 'Yellow Vests'," MEP Pascal Canfin, who chairs the European Parliament's environment committee, warned Timmermans in a parliamentary debate in June.

Similar worries are voiced by the European Environmental Bureau, which called the plan "unfit and unfair."

A 'Social Climate Fund'?

Timmermans for his part acknowledged the regressive nature of the ETS scheme and proposes a Social Climate Fund. This will provide the EU with €20bn a year in spending power to help counter so-called 'energy poverty.'

Countries disproportionally reliant on fossil fuels, or with a large rural population and poor access to public transport, will be especially disadvantaged - but it is still unclear how the funds will be distributed.

According to the commission, that initiative lies with member states, who will need to set up 'climate plans', to soften the effects of the higher fuel and energy prices, themselves. The commission will pay 50 percent of those proposals.

Lucie Matterna, head of EU politics at the E3G climate change think-tank, told EUobserver that she welcomes the social fund, but said it will likely struggle to provide income support and investment across all member states.

Revenues from the social climate fund will be low, and will not be commensurate with the massive task of renovating 35 million homes and getting millions of cars off the road.

According to EU commission president Ursula von der Leyen, 'Fit for 55' represents "a clear and guiding principle, that will incentivise consumers and producers." But he political debate on who will foot the bill is only just beginning.