Social Climate Fund

As part of the revision of the EU emissions trading system (EU ETS), in 2023, the EU adopted legislation to extend emissions trading to the building and road transport sectors.

Emissions from these sectors will not be covered by the existing EU ETS, but by a new, separate emissions trading system: ETS 2.

To address any social impacts that arise from this new system, the Commission will introduce the Social Climate Fund.

• To finance temporary direct income support for vulnerable households with investments in energy efficiency measures such as home insulation, heat pumps, solar panels, and electric mobility;
• To support measures and investments that reduce emissions in road transport and buildings sectors and as a result reduce costs for vulnerable households, micro-enterprises and transport users.

The new emissions trading system will place a yearly declining cap on emissions from road transport and buildings sectors, within which all allowances will be auctioned.

The size of the Social Climate Fund will correspond to a dedicated share of the revenues from the auctioning of emission allowances under the new system. 

The fund will provide direct income support covering up to 37.5% of the Member States' new national Social Climate Plans. It will start operating in 2026, before the entry into force of the new ETS for transport and building fuels, and will be financed by €65 billion from the EU budget, plus 25% co-financing by Member States.

The Social Climate Fund should provide funding to Member States to support measures and investments in increased energy efficiency of buildings, decarbonisation of heating and cooling of buildings, including the integration of energy from renewable sources, and granting improved access to zero- and low-emission mobility and transport. These measures and investments need to principally benefit vulnerable households, micro-enterprises or transport users.

Pending the impact of those investments on reducing costs and emissions, the Fund will also be able to finance temporary direct income support for vulnerable households.

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