Explanatory Memorandum to COM(2021)568 - Social Climate Fund - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2021)568 - Social Climate Fund. |
|---|---|
| source | COM(2021)568  |
| date | 14-07-2021 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
The European Green Deal Communication 1 (‘the European Green Deal’) launched a new growth strategy for the European Union that aims to transform the Union into a sustainable, fairer and more prosperous society, with a modern, resource-efficient and competitive economy, where there are no net emissions of greenhouse gases in 2050 and where economic growth is decoupled from resource use. It reaffirms the Commission’s ambition to increase its climate ambition and make Europe the first climate-neutral continent by 2050. The necessity and value of the European Green Deal have only grown in light of the very severe effects of the COVID-19 pandemic on the health, social and economic well-being of the Union’s citizens.
Based on the European Green Deal strategy and a comprehensive impact assessment, the Commission’s Communication of September 2020 on Stepping up Europe’s 2030 climate ambition 2 (‘the 2030 Climate Target Plan’) proposed to raise the Union's ambition and put forward a comprehensive plan to increase the Union’s binding target for 2030 towards at least 55% net emissions reduction, in a responsible way. Raising the 2030 ambition now helps give certainty to policymakers and investors, so that decisions made in the coming years do not lock in emissions levels inconsistent with the Union’s objective to be climate neutral by 2050. The Union increased 2030 target is in line with the objective of Paris Agreement signed under the United Nations Framework Convention on Climate Change (‘UNFCCC’) (‘the Paris Agreement’) 3 to keep the global temperature increase to well below 2°C and pursue efforts to keep it to 1.5°C.
The European Council endorsed the new Union binding target for 2030 at its meeting of December 2020 4 . On 25 May 2021, the European Council reaffirmed these conclusions and invited the Commission to swiftly put forward its legislative package together with an in-depth examination of the environmental, economic and social impact at Member State level. Both, the climate neutrality of the Union by 2050 and the intermediate net emission reduction of at least 55% by 2030 are enshrined in Regulation (EU) 2021/1119 of the European Parliament and of the Council 5 (‘the European Climate Law’).
In order to implement the European Climate Law and the conclusions of the European Council, the Commission has reviewed the climate and energy legislation currently in place and proposes the ‘Fit for 55’ legislative package.
The increased Union climate ambition also means the contribution from all sectors need to be increased. For that purpose, emissions trading for buildings and road transport is proposed as part of the revision of Directive 2003/87/EC 6 (‘the ETS Directive’). It should provide an additional economic incentive to reduce the direct consumption of fossil fuels and thereby contribute to reducing greenhouse gas emissions. Introducing a market price on carbon in these two sectors in conjunction with other measures should in the medium to long term reduce the costs for buildings and road transport, and will provide new opportunities for investment and job creation that will be taken full advantage of in the presence of the appropriate labour market and skill policies like those supported at the EU level by the European Social Fund Plus (ESF+) established by Regulation (EU) 2021/1057 of the European Parliament and of the Council 7 and the Just Transition Fund established pursuant to Regulation (EU) 2021/1056 of the European Parliament and of the Council 8 .
However, the increase in the price for fossil fuels will have significant social and distributional impacts that may disproportionally affect vulnerable households, vulnerable micro-enterprises and vulnerable transport users who spend a larger part of their incomes on energy and transport and who, in certain regions, do not have access to alternative, affordable mobility and transport solutions. Such impacts on vulnerable groups differ between Member States, and price impacts are likely to be felt more strongly in Member States, regions and population with lower average income. As corollary to the fuel price increases through carbon pricing, the emissions trading generates revenues, which can be used to alleviate the burden on the vulnerable groups.
To address the social and distributional impacts on the most vulnerable arising from the emissions trading for the two new sectors of buildings and road transport, a Social Climate Fund (‘the Fund’) is created. The adjustments to the Union budgetary framework necessary for this proposal will be presented by the Commission as part of the upcoming Own Resources package including a proposal to amend the multiannual financial framework 9 . In particular, part of the revenues from the emission trading for buildings and road transport will accrue to the Union budget and a percentage of it will in principle correspond to the new Fund. Before the end of the year, the Commission also intends to present a proposal for a Council Recommendation on how to address the social aspects of the desired green transition.
The Fund aims at mitigating the price impact of the new carbon pricing and should provide funding to Member States to support their policies to address the social impacts of such emissions trading on vulnerable households, vulnerable micro-enterprises and vulnerable transport users. This should be achieved notably through temporary income support and measures and investments intended to reduce in the medium to long term the reliance on fossil fuels through increased energy efficiency of buildings, decarbonisation of heating and cooling of buildings, including the integration of energy from renewable sources, and granting improved access to zero- and low-emission mobility and transport.
• Consistency with existing policy provisions in the policy area
Establishing the Social Climate Fund aims to address part of the social and distributional challenges of Union’s green transition. It is consistent with the climate action policy of the Union and with the commitments undertaken by the Union and the Member States under the Paris Agreement. The increased climate ambition of the Union as confirmed by the European Council conclusions of December 2020 and May 2021, as well as the provisions of the European Climate Law are taken into account while establishing the Fund. In particular, the Fund is intended to alleviate the social and distributional burden from the price impacts of the emissions trading for the sectors of buildings and road transport, and to facilitate clean investments to mitigate that burden. Also other climate, energy and transport legislation which impact these sectors cover social aspects, for example current provisions of Directive 2012/27/EU of the European Parliament and of the Council 10 (‘the Energy Efficiency Directive’) and the ETS Directive both already indicate that the use of funds and revenues should take into account social aspects. The new Fund is complementary to existing budgetary instruments focusing on the investments and skills in relation to the transition.
The climate neutrality objective of the European Green Deal and the European Climate Law, and the twin green and digital transition are a core priority of the Union. The ‘Fit for 55’ package, the Next Generation EU and the multiannual financial framework for 2021-2027 will help achieving the twin green and digital transitions that Europe is aiming for. The combination of these policies will contribute decisively to addressing the economic crisis and facilitating recovery following the COVID-19 pandemics and accelerating the shift to a clean and sustainable economy, linking climate action and economic growth and social and territorial cohesion.
The necessity and value of the green transition have only increased following the severe effects of the COVID-19 pandemic on the health and economic well-being of the Union’s citizens. The Fund will start to be operational during the last two years of the Recovery Instrument 11 and the Recovery and Resilience Facility 12 that are the Union measures to mitigate the economic and social impact of the COVID-19 pandemic and make Union economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the green and digital transitions. The implementation of the Fund, which should continue until 2032, will be consistent with those previous measures. Similarly, the Just Transition Fund is financed from the multiannual financial framework and will end in 2027. Thus, the Fund should continue to operate for five more years.
The European Green Deal acknowledged that the need for a socially just transition must also be reflected in policies at Union and national level. This includes investments to provide affordable solutions to those worst affected by, and less able to cope with, carbon pricing policies, for example through improved public transport, as well as measures to mitigate and address energy poverty and promote re-skilling. This is in line with Principles 1 and Principle 20 of the European Pillar of Social Rights to facilitate labour market transitions in the context of the twin transitions and the recovery from the socio-economic impact of the COVID-19 pandemic and ensure access to essential services such as energy and mobility for all.
Under the climate governance framework, Member States are obliged to update in 2023 their integrated national energy and climate plans (‘NECP’) in accordance with Regulation (EU) 2018/1999 of the European Parliament and the Council 13 (‘the Governance Regulation’). The 10 year NECPs outline how the EU Member States intend to address energy efficiency, renewables and greenhouse gas emission reductions and they already cover energy poverty under current legislation. The Commission monitors and reports on progress as part of the energy union report. The Fund and the Social Climate Plans will link in with and be framed by the reforms planned and the commitments made by the NECPs. With a view to minimize additional administrative costs, the timing of the Social Climate Plans presentation and adoption is aligned to the already existing NECP process.
The implementation of the Fund through the Member States’ Social Climate Plans will also be coherent with the policy and measures supported by various other EU instruments fostering a socially just transition. These include the European Pillar of Social Rights Action Plan 14 , which aims for a socially fair and just green transition for all Europeans, the European Social Fund Plus (ESF+), the Just Transition Plans pursuant to Regulation (EU) 2021/1056, Member States long-term buildings renovation strategies pursuant to Directive 2010/31/EU of the European Parliament and of the Council 15 and the Energy Poverty Observatory, which supports Member States’ efforts in alleviating and monitoring energy poverty and related policy mixes, in line with the Commission Recommendation on Energy Poverty 16 .
The Social Climate Fund will also contribute to the implementation of the “EU Action Plan: Towards Zero Pollution for Air, Water and Soil” 17 which aims at maximising synergies between decarbonisation and the zero pollution ambition. To this end, measures and investments will also be geared towards actions (e.g. on heating and boilers) that can simultaneously help reduce air pollution since the the fight against pollution is also a fight for fairness and equality. Pollution’s most harmful impacts on human health are typically borne by the most vulnerable groups.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
The legal bases for the proposal of this Regulation to establish Social Climate Fund are Article 91(1)(d), Article 192 i and Article 194(1)(c) of the Treaty on the Functioning of the European Union (‘TFEU’).
The Fund is established to tackle the social and distributional challenges from the green transition necessary to combat climate change and to incentivise the measures necessary to alleviate the social consequences of the emissions trading for the sectors of buildings and road transport.
According to Article 192 i of TFEU, the Union is to contribute to the pursuit, inter alia to preserving, protecting and improving the quality of the environment, promoting measures at international level to deal with regional or worldwide environmental problems, and in particular combating climate change. Union policy on the environment aims at a high level of protection taking into account the diversity of situations in the various regions of the Union. The measures aimed at sustainable transport are also adopted under these provisions.
The Fund addresses in particular the energy poverty challenges for vulnerable households and vulnerable micro-enterprises. It should support measures to promote energy efficiency, energy saving and the development of new and renewable forms of energy, as indicated in Article 194(1)(c) of TFEU.
The Fund also need to address the situation of vulnerable transport users. It should support measures to facilitate their access to zero- and low-emission mobility and transport solutions, including public transport, and thereby contribute to achieve the objectives of the common transport policy as indicated in Article 91(1)(d) of TFEU.
• Subsidiarity (for non-exclusive competence)
The Fund is established to complement the emission trading for buildings and road transport that is to apply throughout the Union. The application of a uniform price for greenhouse gas emissions from buildings and road transport will have an uneven impact in different Member States and regions. The Fund shall provide support to Member States, so that they could finance a coherent set of measures, including temporary direct income support, and investments considered necessary to meet the climate targets of the Union and, in particular ensuring affordable and sustainable heating, cooling, and mobility. The support should reflect the diverse situation of Member States and their regions, taking into account regional energy poverty maps and maps of poorly connected by road or rail, remote and rural areas. Those measures and investments, including the temporary direct income support shall benefit households, micro-enterprises and transport users, which are vulnerable and particularly affected by the emissions trading for buildings and road transport as regulated entities are expected to pass through costs to final consumers.
Funding from the Union budget concentrates on activities whose objectives cannot be sufficiently achieved by all the Member States alone (‘necessity test’), and where the Union intervention can bring additional value compared to action of Member States alone. In the present case, the specific needs of the different Member States are reflected in the allocation methodology. The creation of a Union programme also ensures that all Member States can take measures to complement the climate action at Union level. The Member States will be those who will design and select the measures and investments, because they are best placed to design measures that reflect the national particularities.
Member States should put forward a comprehensive set of measures and investments to be financed by the Fund as their Social Climate Plans to be submitted together with the update of their NECP in accordance with the Governance Regulation.
Action at the Union level is necessary to achieve a fast and robust green transition where no one is left behind. Action thus at the Union level is needed to coordinate an appropriate response to the social challenges from the emission trading for the sectors of buildings and road transport (‘effectiveness test’). This goal cannot be achieved to a sufficient degree by the Member States acting alone, while the Union's intervention can bring an additional value by establishing an instrument targeted at supporting Member States financially as regards the design and implementation of much needed measures and investments.
• Proportionality
The proposal complies with the proportionality principle in that it does not go beyond the minimum required in order to achieve the stated objective at the Union level and which is necessary for that purpose.
• Choice of the instrument
The goals described in the preceding sections cannot be reached through a harmonisation of legislations, or by voluntary action of the Member States. Only a regulation would allow them to be achieved. A regulation applicable to all Member States is also the most appropriate legal instrument to organise the provision of financial support with a view to ensure equal treatment of Member States.
The majority of revenues from the new emissions trading will accrue to national budgets of the Member States and should be used for climate-related purposes, including to address the social impacts of the new emissions trading. Member States are encouraged to use such revenues, as well as to direct additional funding available from other Union programmes, to measures that support a socially fair decarbonisation of the sectors. A new fund in direct management in the Union budget complements these measures in a way that provides specifically for, and is directly linked to the social challenges from emission trading in the sectors of buildings and road transport through a results oriented integrated approach based on an agreed plan with clear targets, milestones and deliverables. The distribution key for the Fund takes into account the uneven impact expected across and within Member States.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex-post evaluations/fitness checks of existing legislation
There was no ex-post evaluation or fitness check related to this proposal as the implementation of the increased Union climate ambition has not yet started.
• Stakeholder consultations
The Commission invited the Member States, industry representatives from the private sector, non-governmental organisations, research and academic institutions, trade unions and citizens to provide their feedback and opinion on the possible emissions trading for the sectors of buildings and road transport, including on its social consequences.
The Commission collected first round of public consultation before it adopted the Communication on the 2030 Climate Target Plan that proposed to raise the Union's ambition and put forward a comprehensive plan to increase Union’s binding target for 2030 towards at least 55% net emissions reduction, in a responsible way.
For each of the proposals of the ‘Fit for 55’ package the Commission organised a second round of online public consultations. With regard to the revision of the ETS Directive, including the emissions trading for buildings and road transport, almost 500 replies were received 18 . Prior to that, the Commission invited feedback on an inception impact assessment 19 of the revision of the ETS Directive, including the initial considerations and policy options on the possible set up of the emissions trading.
With regard to the buildings and road transport sectors, several stakeholders, including social partners from both the employer and employee side, are generally sceptical about an extension of emissions trading to these sectors. Among the presented options, the preferred policy option of a wide range of stakeholders was to start with a separate self-standing system for the building and road transport sectors, as reflected in the proposal on the ETS revision. Several stakeholders also referred to the social impacts of an increase in the price for heating and transport fuels on the most vulnerable households. In particular, it was highlighted that low-income households may need support in order to carry out the necessary investments in energy efficiency and zero- and low-emission mobility and transport.
• Collection and use of expertise
This proposal builds upon evidence gathered in the impact assessment accompanying the 2030 Climate Target Plan 20 , the impact assessment underpinning the revision of the ETS Directive 21 , analysis conducted in support of the Commission’s Long-Term Strategy 22 and relevant evidence compiled in other concurrent European Green Deal initiatives, as well as earlier studies related to buildings and road transport.
• Impact assessment
The problems addressed by the proposed Fund and the possible solution directions are analysed in two consecutive impact assessments, therefore no specific impact assessment was carried out.
The impact assessment underpinning the 2030 Climate Target Plan found that an increase of the 2030 emission target to -55% increases the share of energy related households expenditures by around 0.7 to 0.8 percentage points. Changes in consumer prices affect households in contrasted manners that depend on their expenditure structure, level and sources of incomes, wealth and the very composition of the household.
The estimated changes in relative prices generated by higher climate ambition would affect lower income earners significantly more than the top income earners. However, these results do not include the redistribution of auction revenues. If for example, a lump-sum redistribution of the auction revenues based on household size is introduced for each Member State, this could generate a positive welfare impact on the bottom expenditure decile of the Union population as a whole and sharply reduce the negative impact on all other expenditure classes. The impact assessment also concluded that as an actual policy, a redistribution mechanism could be significantly more targeted to address the needs of lower income/expenditure deciles. This would enable a higher degree of compensation for and support to the households in need for any given level of revenue generated by carbon pricing.
The impact assessment accompanying the Proposal for amending the ETS Directive within the ‘Fit for 55’ package refines this analysis. It puts a specific focus on introducing emissions trading for buildings and road transport and analyses its social impacts, in particular on the lower-income and vulnerable households. Notably it disaggregates the household energy expenditure into fuel costs and capital costs for investments, as well as per main household income groups and Member State income groups.
Residential investment expenditures are expected to increase in 2030 in the Union by 0.4 to 0.7 percentage points of household income compared to the baseline as consequence of the ‘Fit for 55’ package. In a more carbon price driven policy setting, investment expenditures increase less strongly than in a more balanced policy mix. In a cost-effective policy mix the investment expenditure increases for lower income households would be across all MS income groups over double of the average household. Increases are well above Union average in MS with a GDP per capita below 60% of the Union average. This shows the importance of access to finance, for renovation of the housing stock, and the purchase of energy efficient equipment, in particular in lower income Member States.
The impact assessment for the revision of the ETS Directive found that emissions trading for buildings will not affect households equally, but would likely have a regressive impact on disposable income, as low-income households tend to spend a greater proportion of their income on heating. In addition, the introduction of a harmonised carbon price will have a very different impact on consumer prices in the Member States depending on the existing level of taxes on the fuels concerned, as pre-tax prices of fossil fuels are comparable across the Member States. However, overall fuel expenditures as percentage of income remain on average nearly stable. This means that there can be fuel expenditure savings despite the price increases, provided that cost-effective investments are realised. If these investments are realised, then on average the lower income households will be in a better position than the average household. For the low-income Member State group the share of fuel expenditures in household consumption expenditures rises across all income groups, and more strongly for low-income households. If the necessary energy efficiency, refurbishment and renewable energy investments are undertaken, the challenge of fuel price increases remains limited and focused on lower-income households in low-income Member States.
With regards to road transport, the Sustainable and Smart Mobility Strategy (‘SSMS’) and the impact assessment, accompanying the 2030 Climate Target Plan, have recognised the central importance of investments aimed at boosting demand for zero- and low-emission vehicles and at accelerating the rollout of recharging and refuelling infrastructure for these vehicles, which will play a key role in achieving the goal of decarbonising significantly road transport by 2030.
The impact assessment accompanying the proposal to revise the ETS Directive finds that the impacts on the households from the emissions trading for road transport are mixed. Typically, it is the lower-middle and middle parts of the household income classes where the proportion of spending on transport is highest (because the lowest income households do not have access to a private vehicle).
However, the impact assessment also concludes that although the carbon pricing increases energy costs for consumers, at the same time it raises revenues, which can be used for reinvestments, for stimulating climate action and to address social or distributional impacts of carbon pricing. Revenues from the auctioning of allowances under that emissions trading can be used through different redistributive mechanisms as compensation to the consumers, support to investment in energy efficiency or in renewables, or other options.
• Regulatory fitness and simplification
The EU ETS legislation has consistently favoured approaches to minimise the regulatory burden for both economic operators and administrations.
In line with the Commission’s commitment to Better Regulation, this proposal has been prepared taking into account stakeholder contributions (see also section on the collection and use of expertise).
The Social Climate Plans are to be submitted together with the update of the existing national energy and climate plans (‘NECPs’) to minimise additional administrative efforts. The NECPs already contain a detailed overview of the underlying issues about energy poverty that the Fund addresses. Similarly, building renovation, sustainable transport and projects relating to decarbonising road transport have already been extensively addressed in the national Recovery and Resilience Plans.
The required additional administrative effort would mostly fall on administrations, while ultimate benefits would accrue to households, micro-enterprises and transport users. Opportunities for revenues and jobs would benefit local companies, often small and medium enterprises.
• Fundamental rights
The proposal has a positive effect on the preservation and development of Union fundamental rights as well as principles of inclusion and non-discrimination, assuming that the Member States request and receive support in related areas that may be financed under the Fund.
Women are particularly affected by carbon pricing measures as they represent 85% of single parent families. Single parent families have a particular high risk of child poverty. Gender equality and equal opportunities for all, and the mainstreaming of those objectives, are to be taken into account and promoted throughout the implementation of the Fund. Moreover, 87 million Europeans with some sort of disability live in private households and face significant risk of poverty and social exclusion (28.5% as compared to 18.6% of those without disabilities in the Union in 2019).
4. BUDGETARY IMPLICATIONS
The total financial envelope of the Fund for the 2025-32 period will be EUR 72.2 billion in current prices. The Commission will shortly propose a targeted amendment of the Regulation for the multiannual financial framework for the years 2021 to 2027 to accommodate an additional Union spending of an amount of EUR 23.7 billion for the period 2025-2027. The spending should be frontloaded to precede and accompany a smooth introduction of the new ETS. The amount of EUR 48.5 billion for the period 2028- 2032 is subject to the availability of the funds under the annual ceilings of the applicable multiannual financial framework referred to in Article 312 TFEU, for which the Commission will make a proposal before 1 July 2025 23 .
The financial envelope of the Fund should in principle correspond to 25% of the expected revenues from the inclusion of buildings and road transport within the scope of application of the ETS Directive, given its direct link with the new ETS. The proposal for amendment to Own Resources Decision will set out how Member States should make available the necessary revenues to the Union budget as own resources.
For the period 2025-2032, the Fund will thus be financed by the own resources of the Union budget, including as of 2026 the revenues from the emission trading for buildings and road transport as foreseen in the amendment to Own Resources Decision that the Commission will present shortly. The Fund should apply one year before the introduction of carbon price under the new ETS.
The annual distribution of budgetary commitments shall be calibrated in line with the Fund’s objective. The result is a frontloaded profile, in line with the Fund’s objectives to alleviate the effects of the extended scope of the ETS Directive on vulnerable households, vulnerable micro-enterprises and vulnerable transport users. In order to anticipate the effects of the extension, some support is already made available in 2025.
Budgetary commitments shall be broken down into annual instalments spread over two multiannual periods 2025-2027 and 2028-2032, corresponding with the current and next MFF and in line with an indicative timetable for the implementation of the relevant milestones and targets included in the Commission Decision approving the Member State’s Social Climate Plans.
Payments of financial allocations to the Member State shall be made upon completion of the relevant agreed milestones and targets indicated in the Member State’s Social Climate Plan as approved and subject to available funding. Payments will be made based on the Decision authorising the disbursement of the financial allocation.
To facilitate the timely implementation of the supported measures and investments, the planning of the milestones and targets is expected to closely follow the schedule of the annual budgetary commitments, underpinning a fast absorption speed for the Fund. Final payments will be made in 2032 in line with the deadline for completion of all milestones and targets
The maximum financial allocation from the Fund to each Member State shall be calculated following the formula presented in Annex I of the Regulation. The resulting proportion and amount of each Member State in the financial envelope of the Fund is presented in Annex II. Each Member State may submit a request up to its maximum financial allocation to implement its respective plan.
The maximum financial allocation per Member State is to take into account the gross of the administrative support expenditure referred to in Article 9(3) of this Regulation. The related amounts will be deducted from the individual financial allocations on a pro rata basis.
Member States should finance at least 50% of the total costs of the Social Climate Plans. They are to use part of their expected revenues from the inclusion of buildings and road transport into the scope of application of the ETS Directive for this purpose, without prejudice to the start of the Fund in 2025.
Further details on the budgetary implications and the human and administrative resources required are provided in the Legislative Financial Statement attached to this proposal.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
In order to monitor the performance of the implementation of the Fund a system for requesting and executing payments from the Fund will be set up.
Member States should develop their Social Climate Plans to set the measures and investments to be financed, their expected costs as well as milestones and targets to achieve them. The Commission is to assess those plans and may approve them only after a positive assessment based on their relevance, effectiveness, efficiency and coherence. The disbursement of the financial allocation will follow the completion of the milestones and targets agreed with the Member State concerned and made binding by a Commission Implementing Decision. The submission timing as well as progress reporting cycles are aligned with the updates of the integrated national energy and climate plans submitted under the Governance Regulation.
For that purpose, once or twice per year Member States may be able to request a payment under the Fund that should be accompanied by evidence on the achieved relevant milestones and targets. The Member States should report to the Commission on the progress made for the implementation of the measures and investments under their Social Climate Plans in the biennial reporting on progress in the implementation of their NECPs under the Governance Regulation.
An evaluation and an ex-post evaluation will be carried out with a view to assessing the effectiveness, efficiency, relevance and coherence of the Fund. Where appropriate, the Commission will accompany the evaluation with a proposal for review of the Regulation.
• Detailed explanation of the specific provisions of the proposal
A Social Climate Fund is established for the period 2025 to 2032 to address the social impacts arising from the emissions trading for the sectors of buildings and road transport (Article 1). The funds of the Fund should be provided to Member States to provide temporary income support and to support their measures and investments intended to reduce reliance on fossil fuels through increased energy efficiency of buildings, decarbonisation of heating and cooling of buildings, including the integration of energy from renewable sources, and granting improved access to zero- and low-emission mobility and transport to the benefit of vulnerable households, vulnerable micro-enterprises and vulnerable transport users.
Each Member State should establish its Social Climate Plan (Article 3). The Plan is to be submitted together with the update of the NECP under the procedure and timeline envisaged by the Governance Regulation, where the official submission is due by end-June 2024. The Regulation sets the content of the Social Climate (Article 4) and lists the eligible (Article 6) and non-eligible (Article 7) actions. The Fund should support activities that fully respect the climate and environmental standards and priorities of the Union and the principle of ‘do no significant harm’ within the meaning of Article 17 of Regulation (EU) 2020/852 of the European Parliament and of the Council 24 (Article 5).
The financial envelope of the Fund is EUR 23.7 billion for the years 2025-2027 and EUR 48.5 billion for the years 2028-2032 (Article 9), which corresponds in principle to 25% of the expected revenues to be accumulated from the auctioning of allowances within the emissions trading for buildings and road transport. The distribution of the funds in the Fund will be made in accordance with Article 13 and Annexes I and II. Member States should contribute to at least 50% of the total estimated costs of the plan. For that purpose, they should inter alia use the revenues from auctioning of their allowances under the emissions trading for the two new sectors (Article 14).
The Commission is to assess the relevance, effectiveness, efficiency and coherence of Member States’ Plans (Article 15). Upon positive assessment, the Commission is to adopt an implementing decision (Article 16). Otherwise it may reject the Social Climate Plan, in which case the Member State concerned may submit an update of the Plan.
During the implementation phase, the Member States may request a reasoned amendment of its Social Climate Plan, where its milestones and targets are no longer achievable, either partially or totally, because of objective circumstances (Article 17). The Member States should assess the appropriateness of their Social Climate Plans in view of the actual effects of the emissions trading system for buildings and road transport.
Based on a positive assessment of the Social Climate Plan, the Commission will conclude an agreement with the Member State concerned (Article 18) for the purposes of establishing an individual legal commitment within the meaning of the Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council 25 (‘the Financial Regulation’).
The payments of financial allocations to the Member States under the Fund are made upon completion of the relevant agreed milestones and targets indicated in the Social Climate Plans. Concrete rules are sets on payments, suspension and termination of agreements regarding financial allocations (Article 19).
The Regulation contains the necessary provisions to safeguard the linking of the Fund to the protection of the financial interests of the Union (Article 20).
Concrete provisions are included to ensure a robust system for coordination, communication and monitoring (Articles 21, 22 and 23). The Commission is to set out in delegated acts the common indicators for reporting on the progress and for the purpose of monitoring and evaluation.
Evaluation will be carried out with a view to assessing the effectiveness, efficiency, relevance and coherence of the Fund. An assessment of the size of financial envelope of the Fund will be made in view of the auction revenues accumulated from the auctioning of allowances under the emissions trading system for buildings and road transport under the ETS Directive. Where appropriate, the Commission will accompany the evaluation with a proposal for review of the Regulation (Article 24).
To ensure that the Fund is used only if the emissions trading system for buildings and road transport is effectively implemented, the Regulation will apply from date Member States have to transpose the ETS Directive for building and road transport (Article 26). Moreover, the Member States will be able to request a payment under the Fund not earlier than during the year preceding the year of the start of the auctions under the new emissions trading (Article 18(1)).