EU ETS II – What impact could it have on households?

The European Emissions Trading System II (EU ETS II) is currently the subject of heated debate on the European stage. Together with accompanying measures, such as the Climate Social Fund and other instruments, the EU ETS II is intended to lead Europe into a climate-neutral future. This series of articles discusses the basics and background of the EU ETS II and addresses the issue of the use and distribution of revenues. It also summarizes the reform proposals on the table and evaluates their impact on individual households. This series of articles is aimed at anyone who wants to understand the background to the current debate and how the EU ETS II works and what its impact is. The forth article in this series deals with the potential impact of EU ETS II on households.

The European Emissions Trading System II (EU ETS II), which is expected to replace the current national emissions trading system from 2028 onwards, will in future cover CO₂ emissions from buildings, road traffic, and smaller industries. Put simply, a price per ton of CO₂ emitted will then have to be paid for these areas [1]. As outlined in of this article series, projections for the future market price of these certificates vary significantly. Nevertheless, a key question remains: what financial impact will the EU ETS II have on households and individual citizens.

An examination of Figure 1, which illustrates per capita CO₂ emissions from heating and cooling residential buildings as well as mobility of households across EU member states, reveals substantial variation between countries and the two subsectors under consideration. The lowest per capita emissions are observed in Bulgaria at 0.41 tonnes of CO₂, while the highest are found in Luxembourg at 2.22 tonnes of CO₂. Germany ranks near the top with 1.94 tonnes of CO₂ per capita. In Sweden, emissions stem almost exclusively from mobility, whereas in countries such as the Czech Republic and Poland, heating accounts for more than half of the per capita emissions [2].

For the fossil fuels responsible for these emissions, a CO₂ price surcharge must be paid. Table 1 presents the corresponding surcharges for gasoline, heating oil, and natural gas at different CO₂ price levels (own calculations based on [3]).

Table 1: CO₂ price surcharge for gasoline, heating oil and natural gas at different CO₂ price levels (own calculations based on [3])

Due to the previously outlined national differences, as well as regional and socio-economic disparities, the financial burden of the EU ETS II on individual households is expected to vary significantly. These differences have been examined in studies such as [4], [5], and [6].

Study [4] analyzes the cost burden for three exemplary low-income household types in Germany: (1) single pensioners not receiving state support, (2) single-person households receiving citizen’s income (Bürgergeld), and (3) low-income three-person households. Low-income households are defined as those with a disposable income below 60% of the national median. Within the study’s considered range of CO₂ certificate prices—from €45 to €180 per tonne—the following additional annual costs were calculated for the single pensioner:

• heating with natural gas: €86 to €334 per year with annual consumption of 8,030 kWh
• heating with heating oil: €112.50 to €450 per year with annual consumption of 792 litres
• gasoline-powered car: €40 to €160 per year driving 4,500 km annually

In contrast, the single-person household receiving citizen’s income typically travels longer distances—around 12,000 km per year—leading to a mobility-related cost increase of €119 to €475 per year, depending on the CO₂ certificate price. The low-income three-person household faces the following additional annual costs:

• heating with natural gas: €125 to €500 per year with annual consumption of 11,826 kWh
• heating with heating oil: €166 to €663 per year with annual consumption of 1,166 litres
• gasoline-powered car: €168 to €683 per year driving 18900 km annually

These findings highlight that individual mobility and, in particular, the use of oil-based heating systems can result in significant additional financial burdens. Notably, oil heating systems are more prevalent in low-income households and those occupied by pensioners than in the general population [4].

In study [5], a definition of vulnerable households was developed to assess the impacts of the EU ETS II. Regarding heating, a household is considered vulnerable if it has a specific energy consumption per square meter of over 180 kWh/m², a relatively high proportion of total expenditure spent on heating, and an income in the bottom five income deciles. If a household is vulnerable in terms of mobility, its income is in the bottom five income deciles, as in the case of vulnerability in terms of heat supply, its share of total expenditure on mobility is twice as high as the median; and it is a rural household.

According to these definitions, 2.3 million households are classified as vulnerable with respect to heating, and 700,000 households with respect to mobility. The results of the study are illustrated in Figure 2, which shows that the additional financial burden for households vulnerable in terms of heating is, on average, higher than for those vulnerable in terms of mobility. Households falling under both categories face an annual additional cost of €416 at a CO₂ price of €55 per tonne, and €758 at a price of €100 per tonne [5].

Study [6] examines two specific case studies to assess the impact of CO₂ pricing on household energy costs. The first case compares a multi-family dwelling in an urban area with a single-family home in a rural setting, each inhabited either by a single pensioner or a four-person family. In general, energy consumption is higher in the rural single-family home, with one exception: the gasoline consumption of the four-person family’s car in the urban multi-family dwelling exceeds that of its rural counterpart. When considering per capita consumption—and thus the individual financial burden from CO₂ pric-ing—the single pensioner faces significantly higher costs compared to the family members.

The analysis is based on a CO₂ price scenario, and therefore does not provide specific figures for a given market price. The second case study compares single-person households across different income groups: low-income, middle-income, and high-income earners. The findings clearly show that energy consump-tion—and consequently the additional costs due to CO₂ pricing—increases with income. In both case studies, the additional costs associated with gasoline-powered vehicles are lower than those for gas heating systems, which in turn are lower than the costs for oil heating systems [6].

In summary, the studies show a tendency that, as long as fossil fuels are used for heating and private combustion vehicles are driven, the additional costs resulting from the CO2 price are higher for heating than for individual mobility. The additional costs for heating depend in particular on the emission in-tensity of the energy source used, which is higher for heating oil than for natural gas, for example.

All of the aforementioned studies demonstrate that analyzing the effects of the EU ETS II on households—as well as other end users such as micro-enterprises—requires robust data models that integrate both energy system and socio-economic data. In this con-text, the FfE can contribute with a wide range of models and tools. These include the regionalized en-ergy system model FREM, the single-building model HOUSE, the heating cost comparison tool, and sectoral models such as PriHM, TerM, and TraM. These instruments enable detailed assessments of the impact of CO₂ certificate prices under the EU ETS II on a broad spectrum of consumers.

Literature

[1] Agora Energiewende und Agora Verkehrswende. Der CO2-Preis für Gebäude und Verkehr. Ein Konzept für den Übergang vom nationalen zum EU-Emissionshandel, 2023.

[2] eurostat. Air emissions accounts by NAVE Rev. 2 activity(env_ac_ainah_r2). Last update of data: 13.12.2024.

[3] Friedrich Ebert Stiftung. Die CO2-Bepresiung im Umbruch. Was ist vom ETS2 zu erwarten, was kann ein Klimageld leisten?. FES Impuls, 2024.

[4] Frondel. Soziale Auswirkungen der CO2-Bepreisung in Deutschland. Das Versprechen zur Rückverteilung der Einnahmen gänzlich lösen. Leibniz-Institut für Wirtschaftsforschung (RWI), Essen.

[5] Umweltbundesamt. Der Klima-Sozialfonds im Fit-for-55-Paket der Europäischen Kommission – Definition und Quantifizierung vulnerabler Haushalte und notwendige Investitionsbedarfe. Dessau-Roßlau, 2022.

[6] Kalkuhl et al. CO₂-Bepreisung zur Erreichung der Klimaneutralität im Verkehrs- und Gebäudesektor. Investitionsanreize und Verteilungswirkungen. Mercator Research Institute on Global Commons and Climate Change (MCC) gGmbH, Berlin, 2023.