The EU’s second ‘cap and trade’ emissions trading system (ETS2) for road transport and buildings aims to accelerate Europe’s decarbonisation, promoting cleaner fuels and technologies. Early financial support for vulnerable groups, policy coherence, public support, transparency, and effective communication are crucial for its success, as highlighted in two European Environment Agency (EEA) briefings released today.
The EEA briefings explore the opportunities and challenges of the ETS2 for the road transport sector and buildings sector. ETS2 aims to cut carbon dioxide emissions from fuel combustion in buildings, road transport, and small industries not included in the existing EU Emissions Trading System (ETS1).
Social fairness at the heart of ETS2
The briefings emphasize the importance of a just transition in deploying the new cap and trade system to address concerns about fuel prices and mobility costs. The extension of the EU’s system to transport, buildings, and other sectors will directly impact households and car users financially, raising fossil fuel prices for heating and mobility, potentially disproportionately affecting less affluent households and regions.
The EU’s Social Climate Fund, financed by ETS2 revenues, will tackle these impacts and financial challenges, ensuring social fairness is central to the new system. The fund will support households and small businesses and fund investments to reduce fossil fuel reliance.
Impact on transport and buildings
The new cap and trade system extends carbon pricing to road transport fuels to encourage a shift to electric vehicles and promote energy-efficient mobility.
Applying carbon pricing to road transport, alongside other policies (standards, regulation, information, awareness), is expected to motivate a shift to cleaner fuels and technologies, the briefing notes.
Transport is the largest emission source in the EU and a challenging sector to decarbonize. The sector remains 93% reliant on fossil fuels. Road transport emissions fell by just 4.4% between 2005 and 2023, compared to a 48% reduction in EU emission trading sectors (ETS1). Energy efficiency improvements, increased biofuel use, and rising electric vehicle sales have helped, but gains have been offset by growing demand for mobility and freight.
Greenhouse gas emissions from fossil fuel use in buildings have dropped by 37% in 2023 since 2005 due to insulation, efficient boilers, and milder winters.
However, residential buildings still account for about 75% of fossil fuel use for heating. Further reductions require faster renovation and the rapid deployment of renewables and heat pumps.
The extension of carbon pricing to fossil fuel use in buildings is intended to drive improvements in energy efficiency, renovation, and clean heating. However, including buildings in the ETS2 raises concerns about heating costs and social impacts, especially for vulnerable households. Complementary EU and national policies—such as building standards, performance information, fiscal incentives, targeted financial instruments, and advisory services—are essential to maximize emissions reductions while ensuring a just transition.
Background
The EEA briefings are based on the European Topic Centre report: ETC CM report 2025/09: EU ETS2 and Social Climate Fund: Enabling decarbonisation in transport and buildings that works for all
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