A Social Climate Fund at the service of people

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The report on the creation of the Social Climate Fund (SCF) was adopted in mid-May at a joint meeting of MEPs from the Committee on Employment and Social Affairs and the Committee on the Environment, public health and food safety. This is the first step to materialize the proposal to create a special fund, worth 72.2 billion euros. The approach aims to offset the social impact generated by the ambitions of the European Union in terms of decarbonisation. The fund would become operational in 2025 and run until 2032. In essence, it is designed to reduce the social burden caused by the negative impact on prices of including the building and road transport sectors in the European tax system. emissions trading (ETS).

The Social Climate Fund will be responsible for supporting EU citizens, if Green Deal measures lead to higher bills or other undesirable effects. The fund will provide financing to Member States to support measures to offset rising utility bills and investments in increasing building energy efficiency, decarbonising building heating and cooling, including the integration of energy from renewable sources and the granting of better access to zero and low emission mobility. These measures will mainly benefit vulnerable households, micro-enterprises and transport service users.

“It’s about climate change, but also about people,” commented Dragos Pislaru, chairman of the parliamentary committee on employment and social affairs.

Price increases will be high

The inclusion of the construction and road transport sectors in the ETS system will have a significant financial impact in terms of prices. Basically, a new element will be introduced into the costs, the price of CO2 quotas, and the possibility for the people targeted to change their situation is very limited or even non-existent, declared the European Economic and Social Committee (EESC) to the end of last year. Consequently, rising energy and mobility costs will aggravate energy poverty. The inclusion of road transport in this system was done despite the reluctance of the private sector, trade unions and NGOs. The effects will be strong, especially on households who, for financial reasons, cannot choose an electric vehicle or an alternative fuel vehicle. HGV transporters will also be affected, since, at least for long distances, no real alternative to fossil fuels is available, the EESC also underlined. The EESC also drew attention to the fact that the questions of whether zero-emission products will become sufficiently attractive to offset the cost difference caused by the ETS or whether measures would be introduced in international markets with cost effects equivalent to those of the ETS remain valid. If this is not the case, the competitiveness of European companies on world markets may become problematic.

Members of the European People’s Party (EPP) strongly support this idea. “Carbon pricing is crucial” to reducing emissions in road transport and buildings, said German lawmaker Peter Liese. But others are less convinced, saying the social climate fund should be separated from plans to create a new emissions trading system for transport and buildings. According to the Commission’s proposal, the second ETS would initially be separate from the current carbon market, which covers emissions from industry and the electricity sector.

“We believe that Parliament’s position should be to cut the link between the extension of the ETS and a social climate fund in order to allow the social climate fund to be financed by other means, such as by example that of the ETS,” said environmental lawmaker Michael Bloss.

“If there is no extension of the ETS, which brings new money to the budget, there will be no new own resources,” noted Andreas Schwarz, an EU official. working in the Budget Directorate of the European Commission.

“And if there are no new own resources, there will be no agreement in the Council on the financing of the social fund for the climate”, he warned the legislator.

Energy Efficiency Financing

The fund will financially support investments aimed, among other things, at increasing energy efficiency and renovating buildings. EU states will therefore be able to apply for money from the Social Climate Fund to support the renovation of buildings, including in the form of financial aid or tax incentives, such as the deductibility of renovation costs in the rent, regardless of ownership of the building in question. In addition, states will be able to receive money for decarbonization by foregoing gas for heating and cooking buildings and switching to electric systems, including integrating energy from renewable sources. Member States will also be able to include in funding requests the costs generated by measures that provide temporary direct financial support to members of vulnerable households who use public transport, such as granting free passes and reductions. Also in the field of transport, the fund will finance increased access to zero-emission and low-emission vehicles and bicycles, with EU countries able to provide financial support or tax incentives for their purchase, as well as for the creation of charging stations for electric vehicles. Infrastructure.

Instead, measures involving state intervention in gas supply pricing will be excluded from funding. However, the operating rules of the Fund provide that if a Member State demonstrates that the interventions do not fully compensate for the increase in prices resulting from the inclusion of the building and road transport sectors in the scope of the 2003 Directive /87/EC establishing a scheme for greenhouse gas emission allowance trading, direct support may be included in the total estimated costs within the limit of price increases which are not fully compensated.

Economic analysts are skeptical

The money that would constitute this fund would come from the exchange of emission quotas in the field of construction and road transport. This means that the public money collected would compensate for the negative effects generated. However, analysts point out that this money should instead be used to invest in sustainable renewable energy, sustainable transport, such as cycling infrastructure and energy efficiency measures, which will help meet the climate and energy objectives of the EU. set for 2030 and, in the future, by 2050. Thus, the Social Climate Fund would be a driver of change and not a safety net against social risks that may arise. The financial envelope of the fund is 23.7 billion euros for the period 2025-2027 and 48.5 billion euros for the period 2028-2032, which corresponds, in principle, to 25% of the expected revenue the auctioning of emission allowances under the emissions trading system for buildings and road transport. Member States will also contribute at least 50% of the estimated total costs of their plans.

How will the money be allocated?

Financial allocations to each EU Member State will be made based on agreed milestones and targets and included in national plans to mitigate the social impact of climate action. To this end, Member States will have to draw up investment plans and estimated costs, which will be assessed and approved by the European Commission. The payment of the financial allocation will take place after the milestones and targets agreed with the Member State concerned have been achieved and made binding by a Commission implementing decision. Countries can request a payment from the fund once or twice a year, which must be accompanied by proof of the achievement of the supposed objectives.

Calculation method

The methodology for calculating the maximum financial allocation for each country will take into account the following variables:

  • Population at risk of poverty living in rural areas (2019);
  • Carbon dioxide emissions generated by the combustion of fuels by households (average for the period 2016-2018);
  • Percentage of households at risk of poverty that have utility bill payment arrears (2019);
  • Total population (2019);
  • GNI (income per capita of the Member State), measured according to the purchasing power standard (2019);
  • Share of baseline emissions under Article 4(2) of Regulation (EU) 2018/842 for sectors covered by Chapter IV of Directive 2003/87/EC (average for the period 2016-2018).

Investments of 350 billion euros per year

The European Commission has estimated that an additional €350 billion will be invested in the energy system each year by 2030 to meet the EU’s target of reducing net carbon emissions by at least 55% compared to current levels. of 1990 and to achieve an emissions-neutral economy by 2050. Of these investments, approximately EUR 130 billion should be invested in the transport sector and EUR 110 billion in the building sector.

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