Impact of extended emissions trading on heating costs and residential investment

Subject: Impact of extended emissions trading on heating costs and residential investment

The Commission’s proposal for a regulation establishing a Social Climate Fund (COM(2021)568 final) provides that ‘residential investment expenditures are expected to increase in 2030 in the Union by 0.4 to 0.7 percentage points of household income (...) as a consequence of the “Fit for 55” package’ and that ‘investment expenditure increases for lower income households would be across all MS income groups over double of the average household’, which ‘would likely have a regressive impact on disposable income, as low-income households tend to spend a greater proportion of their income on heating’. Those increases a consequence of the inclusion of buildings and road transport within the emissions trading system as part of the revision of Directive 2003/87/EC.

The text further states that the impact assessment accompanying the proposal disaggregates ‘household energy expenditure into fuel costs and capital costs for investments, as well as per main household income groups and Member State income groups’.

Could the Commission provide the disaggregated estimates for each Member State, particularly Portugal’s, showing the impact of increased expenditure on heating or residential investment resulting from the inclusion of buildings within the scope of Directive 2003/87/EC?

Answer given by Executive Vice-President Timmermans on behalf of the European Commission (20 May 2022)

The projected economic impacts on households are provided for the Fit for 55 (FF55) package as a whole, and are referred to in the impact assessment accompanying the Social Climate Fund proposal.

The Commission has published details of the Reference Scenario (1) 2020 and the Policy Scenarios (2), which have been used as the basis for the impact assessments accompanying the FF55 proposals.

Based on these scenarios, the Commission concluded that a mix of carbon pricing and regulatory measures would be the most cost- effective way of reaching the at least ‐55% net reduction target.

Estimates of the impacts of the new Emissions Trading System for buildings and road transport (ETS2) alone are not available. Only the cumulative impact of a range of measures to reach the at least 55% net emission reduction target can provide an appropriate overall assessment, indicating the most cost-effective way to reach the target.

For Portugal, compared to the Reference Scenario, in the Policy Scenarios, measures to achieve the ‐55% target as a whole, by 2030, would result in fuel costs for the housing sector, in percentage points of private consumption, decreasing by 0.23% and 0.17%, and capital costs increasing by 0.64% and 0.03%, in the MIX and MIX-CP scenario (scenarios with a carbon price) respectively.

As the current crisis shows, it is imperative that we move away from fossil fuel consumption towards solutions that save energy, reduce consumers' energy bills and use energy from renewable sources.

With the right accompanying policies in place (3), full implementation of the Commission's ‘Fit for 55’ proposals will make Europe much more resilient to future shocks, incentivise investments in clean energy solutions and better protect first and foremost the most vulnerable.

⋅1∙ https://energy.ec.europa.eu/data-and-analysis/energy-modelling/eu-reference-scenario-2020_en

⋅2∙ https://energy.ec.europa.eu/data-and-analysis/energy-modelling/policy-scenarios-delivering-european-green-deal_en

The Reference Scenario represents current policies and trends before the 55% target is implemented. The three policy scenarios are REG: relying on very strong intensification of energy and transport policies in absence of carbon pricing in road transport and buildings. MIX: relying on both carbon price signal extension to road transport and buildings and strong intensification of energy and transport policies. MIX-CP: representing a more carbon price driven policy mix that illustrates a revision of the Energy Efficiency Directive and Renewable Energy Directive but limited to a lower intensification of current policies in addition to the carbon price signal applied to new sectors. ⋅3∙ COM(2021) 801 final and SWD(2021) 452 final of 14 December 2021.