The launch of the EU’s second emissions trading system (ETS2) for road transport and buildings is set to enhance Europe’s decarbonisation goals by promoting cleaner fuels and technologies. Success hinges on early financial aid for vulnerable parties, policy consistency, transparency, public support, and clear communication, as highlighted by the European Environment Agency (EEA).
The EEA’s briefings assess ETS2’s opportunities and challenges for the road transport and buildings sectors. The ETS2 targets CO2 emission reductions in sectors like fuel combustion in buildings and road transport, expanding beyond the existing EU Emissions Trading System (ETS1).
Efforts to ensure a fair transition are crucial for the cap and trade system’s rollout, addressing fuel price and mobility cost concerns. The cap and trade system’s extension will financially impact households and combustion engine users by affecting fossil fuel prices for heating and mobility, disproportionately affecting less privileged households and regions.
The EU’s Social Climate Fund, funded by ETS2 revenues, aims to address these financial challenges, supporting social fairness. The fund will aid households and small businesses and encourage investment in reducing fossil fuel dependency.
The new system will introduce carbon pricing to road transport fuels to encourage electric vehicle adoption and promote energy-efficient mobility. Applying carbon pricing to road transport, alongside other policies, is expected to accelerate the shift to cleaner fuels and technologies. Transport is the largest emissions source in the EU and the hardest to decarbonise, with a slow 4.4% emissions reduction from 2005 to 2023, compared to 48% in the ETS1 sectors. While energy efficiency and biofuel use have aided reductions, these were offset by increased mobility and freight.
Greenhouse gas emissions from fossil fuel use in buildings have declined by 37% since 2005 due to improved insulation, efficient boilers, and milder winters. Residential buildings still account for about 75% of fossil fuel use for heating. Cutting emissions further requires accelerated renovation and renewable energy deployment.
Introducing carbon pricing in buildings is intended to incentivise energy efficiency improvements, renovations, and clean heating. However, its inclusion in the ETS2 raises concerns about heating costs and social effects, especially for vulnerable households. Complementary policies at the EU and national levels, including building standards, performance information, fiscal incentives, and targeted financial tools, will be crucial to ensure emissions reductions and a fair transition.
The EEA briefings are informed by 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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