Introduction

The social concerns triggered by soaring energy prices across Europe come as a reminder of the negative economic and social consequences of the current polluting fossil fuel system. It also implicitly underlines that any successful green transition must be a ‘just’ transition, or it will not materialize because of political backlashes. The EU Social Climate Fund Regulation the European Commission proposed as part of the 2021 Fitfor55 climate package is its attempt to ensure fair burden-sharing across society of the forthcoming energy price increases that would stem from the creation of a new EU carbon market on emissions from the building and road transport sectors (Emissions Trading System 2, “ETS2”).

This policy brief outlines three overarching reflections on the challenges and opportunities to finance a just transition through the Social Climate Fund. First, it argues that an EU price on carbon emissions from buildings and road transportation would worsen existing social challenges associated with the energy transition. An increase in price has very little influence on individual consumers’ energy consumption. Rising energy bills due to the ETS2 potentially could have large social consequences for European families, for limited decarbonization benefits. Second, this policy brief contends that the Social Climate Fund as currently proposed will not be enough to mitigate the negative and unfair effects of the ETS2 on Europeans, leading to a high risk of social unrest. Third, the Council and the Parliament should therefore bury the ETS2 proposed by the Commission. However, the Social Climate Fund has the potential to send a strong signal of the EU’s commitment to a just transition for all, which in turn could increase the social acceptability of the EU Green Deal. To ensure a just green transition, the ETS2 must be abandoned and the Social Climate Fund should instead be established with financing from the existing carbon market (“ETS1”). Finally, this policy brief concludes that the Social Climate Fund should be redirected to finance green investments in housing and mobility for those who need it the most.

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