The introduction of the EU’s second ‘cap and trade’ emissions trading system (ETS2) for the road transport and buildings sectors will help spur Europe’s decarbonisation ambitions, accelerating the shift to cleaner fuels and technologies. Providing early financial support to vulnerable households and businesses, policy coherency, strong public backing, transparency and clear communication will be key to its success, according to two European Environment Agency (EEA) briefings published today.
The EEA briefings examine the opportunities and challenges brought on by the introduction of the ETS2 for the road transport sector and for the buildings sector. The ETS2, aims to reduce carbon dioxide (CO2) emissions from fuel combustion in buildings, road transport and other sectors like small industry not covered by the existing EU Emissions Trading System (ETS1).
Social fairness at the heart of ETS2
The briefings stress that efforts to sustain a just transition must be at the core of the roll-out of the new cap and trade system to address public concerns over fuel prices and mobility costs. The expansion of the EU’s cap and trade system to transport, buildings and other sectors will have a direct financial impact on households and combustion engine car users, as it will directly affect fossil fuel prices for heating and everyday mobility costs. This will also have a potential disproportionate impact on less-well off households and regions.
The EU’s Social Climate Fund, which will be financed by ETS2 revenues are to address these impacts and financial challenges and ensure that social fairness is at the heart of the new cap and trade system. The fund will be used to support households and small businesses and fund investments that reduce reliance on fossil fuels.
Impact on transport and buildings
The new cap and trade system will extend carbon pricing to road transport fuels as a way to incentivise the shift to electric vehicles and to promote more energy-efficient mobility.
Extending the carbon pricing principle to road transport, coupled with other sectoral policies and measures (standards, regulation, information, awareness, etc), is expected to provide an additional incentive to accelerate the shift towards cleaner fuels and technologies, the briefing says.
Transport is not only the largest emission source in the EU, but also one of the most difficult sectors to decarbonise. The sector remains 93 % dependent on fossil fuels. Emissions from road transport declined by only 4.4 % between 2005 and 2023, far less than the 48 % reduction achieved in the EU emission trading sectors (ETS1). Improvements in energy efficiency (in particular from 2009 when mandatory emission reduction targets for new cars sold in the EU were adopted), increased biofuel use and rising electric vehicle (EV) sales have supported emission reductions, but gains have been largely offset by growing mobility and freight demand.
Greenhouse gas emissions from use of fossil fuel in buildings ( including residential ) have fallen by 37% in 2023 since 2005 thanks to insulation, efficient boilers and milder winters.
However, residential buildings still represent about 75% of fossil fuel use for heating in buildings. Further cuts require faster renovation and rapid deployment of renewables and heat pumps.
Extending carbon pricing to fossil fuel use in buildings is meant to help incentivise and speed up efforts to improve energy efficiency, renovation and clean heating. However, the inclusion of buildings in the ETS2 has raised concerns over heating costs and social impacts, especially for vulnerable households. Complementary EU and national policies—such as building standards, information on buildings performances, fiscal incentives, and targeted financial instruments and advisory services designed to reach social groups, will be essential to maximise emissions reductions while ensuring a just and balanced transition.
Background
The EEA briefings are based on 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
