All but one European Union member state have fallen foul of the date to enter the new Emissions Trading System for road transport and buildings (ETS2) in the national law books. This delay sends completely the wrong signal, argues Eleanor Scott.
Over the summer, the European Commission was kept busy launching an infringement action against the 26 member states who have failed to introduce important climate legislation to create a new Emissions Trading System (ETS2) to cover buildings and road transport before the deadline.
While member states often delay transposing EU legislation, the failure to transpose the ETS directive raises doubts about how serious the majority of EU governments are about living up to their climate targets and deploying ETS revenue to fund climate investments that reduce emissions and combat energy and transport poverty through the Social Climate Fund.
The extended ETS directive entered into force in June 2023 and the deadline for transposition passed on 30 June 2024. All but one member state failed to notify the Commission of measures taken to introduce the ETS2. Only Austria took the necessary transposition measures in time, while Germany made some progress, publishing a draft proposal to transition Germany’s national fuel emission trading system to the ETS2.
The ETS2 will put a price on the carbon emissions from buildings and road transport. By doing so, it will create an incentive for slashing emissions in these two polluting sectors. It would also open up a new source of decarbonisation funding using ETS2 revenue, which would amount to an estimated €260 billion between 2026 and 2032, assuming an average carbon price of €45 per tonne of emissions. To reduce the risk of increases in energy and transport poverty as a result of increased fuel prices caused by the ETS2, the Social Climate Fund was created to deliver €86.7 billion in support across direct investment, temporary income support and technical assistance from 2026-2032.
Readying the road
Missing the deadline sends out worrying signals about possible delays in implementation. While the ETS2 is not set to begin until 2027, it is essential that member states prepare now to provide a clear investment signal for emissions reductions and to provide certainty to those affected by the new scheme.
In addition, as member states begin to draft their social climate plans outlining how they will spend their allocated funds under the Social Climate Fund, which kicks off in 2026, they must remember that this funding is contingent on the proper functioning of the ETS2.
The concerns of outspoken member states, such as Poland, that increased prices for fuel in homes and vehicles would lead to social unrest are valid and must be addressed head on through investment, social solidarity, complementary policies and awareness raising among citizens.
The recycling of carbon pricing revenue for climate action is essential to public acceptance and will be key to ensuring the most vulnerable are protected. Within the Social Climate Fund, a strong public consultation process is essential to the creation of strong social climate plans that provide long-term solutions to energy poverty. Further ETS2 revenue must also be dedicated to providing access to affordable emissions reductions within homes and vehicles along socially just criteria.
No time to lose
However, given the short timeframes ahead, member states cannot afford to wait. It is essential to act now to not only transpose the directive but to implement complementary policies, such as affordable retrofitting schemes, social leasing of electric vehicles and the expansion of accessible and low cost renewable energy. These complementary policies will lower the demand for emission allowances when the ETS2 begins and therefore reduce the ETS2 price.
Member states now have two months to reply to the Commission and complete their transposition. If they do not do so, they will receive a second warning. If member states still do not comply, the Commission may bring a proceeding before the European Court of Justice which could result in substantial fines.
As buildings and road transport make up approximately more than half of the EU’s carbon emissions, the timely transposition and socially just implementation of the ETS2 are essential to meeting the EU’s climate targets.
