Around 75% of EU buildings are energy-inefficient; nearly 40% of all energy used – mostly fossil fuels – goes towards heating and cooling our buildings. Currently over 90% of fossil fuels are imported from outside the EU, exposing the EU to volatile pricing and insecurity. Europe’s over-reliance on imported fossil fuels has a direct impact on its citizens and industries: many across Europe already struggle to pay their energy bills, with 47 million Europeans unable to afford heating their homes in 2023.
Against this backdrop, the Emissions Trading System 2 (ETS2) will put a price on carbon emissions from buildings and transport. The aim is to achieve independence from fossil fuels, and complement other European Green Deal policies. ETS2 will a raise prices on carbon to provide a market incentive for investments in building renovations and low-emissions mobility, making fossil fuel use less attractive while providing funding opportunities for modern, clean technologies.
Money raised by ETS2 can be used to invest directly in modernising Member States’ energy systems. Collectively, EU members are expected to raise at least EUR 260 billion before 2032, generating an unprecedented amount of funds for energy efficiency improvements, renewables and bill assistance. The higher the carbon price set by ETS2, the more money will be raised, but also the higher the financial burden on energy users.
Predictions for a high ETS2 carbon price often rely on the assumption that the Fit-for-55 package will not be implemented well. A strong and swift implementation of EPBD, EED, and RED in undiluted form will push down this price. Every additional measure to lower emissions in buildings will lead to a lower ETS2 price as it reduces the demand for fossil fuels.
Cool Heating Coalition calls on Member States to improve their national climate and energy plans in respect of these policies, which fall short on the heating and cooling (H&C) transition. The ETS2 price will be mainly driven by Germany, France, and Italy, responsible for more than half of ETS2 emissions (followed by Poland and Spain – these five countries represent 70% of ETS2 emissions). Improved efficiency and renewable energy policies in these countries have a big potential to drive prices down.
The Commission should:
- Operationalise ETS2 faster, driving investment in climate solutions and applying the ‘Do no significant harm’ principle strictly.
- Implement ETS2 to protect vulnerable populations, strengthening complementary measures to reduce demand for ETS2 allowances and lower the carbon price, leveraging the SCF to support as many vulnerable consumers and micro-enterprises as possible, increase the co-financing rate of the SCF, and push Member States to submit ambitious and impactful NSCPs.
- Implement additional instruments to reduce carbon emissions and lower ETS2 prices, such as reducing taxes on electricity, banning the sale of fossil fuel boilers, and considering an EU Clean Heat Market Instrument.
Recent polling shows 71% of Europeans said governments should take stronger action to replace outdated heating systems and address volatile energy bills, even if it requires greater investment; while 70% agree that too many buildings in their country are poorly insulated. The ETS2 is a signal for the buildings and heating markets to decarbonise, as well as a way to raise money for investment in renewables and energy efficiency, aligning financial flows with a future where energy independence and warm homes are the norm.