From Carbon Pricing Revenues to Social Outcomes: Improved Spending and Monitoring for Vulnerable Households
FEANTSA Guidance
The extension of carbon pricing to buildings and road transport under the EU Emissions Trading System (ETS2) has intensified concerns about the social impacts of climate policy, particularly for low-income and vulnerable households. Carbon pricing can have regressive effects if the associated costs are not adequately offset and vulnerable households do not receive sufficient funding to decarbonise. At the same time, the EU ETS generates substantial public revenues that, if used in a targeted and transparent way, could mitigate these impacts, support investments in energy efficiency and clean mobility, and strengthen social fairness and public acceptance of the transition. The central challenge is therefore not only how much revenue is generated, but whether it is used in a way that is demonstrably fair and effective.
Recent reforms to the EU ETS framework in 2023 have significantly strengthened Member States' obligations regarding the use of auctioning revenues. The revised European Union Emissions Trading System now requires that 100% of revenues (or their equivalent value) be used for climate and energy-related purposes, with a stronger emphasis on addressing the social impacts of carbon pricing—particularly in the context of ETS2. In parallel, provisions in the Energy Efficiency Directive (EU) 2023/1791 require Member States to prioritise vulnerable households, including those affected by energy poverty, in the allocation of funding, including ETS revenues. However, while these legal changes strengthen spending obligations, they are not matched by equally robust requirements on reporting and monitoring.
As a result, a critical gap remains: the current EU reporting framework does not allow policymakers to assess whether ETS revenues are effectively reaching vulnerable households or mitigating the regressive impacts of carbon pricing. Existing reporting provides limited insight into who ultimately benefits and what outcomes are achieved. This limits the ability of the European Commission to verify compliance with social objectives, weakens accountability, and limits the evidence base needed to ensure the long-term political and social sustainability of carbon pricing.
This briefing examines how reporting and monitoring frameworks for EU carbon pricing revenues can be strengthened to ensure that revenues from the EU Emissions Trading System (ETS) deliver measurable social outcomes.