How are the revenues from EU ETS II used and distributed?
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 second article in the series deals with how the revenues from the EU ETS II are used and distributed.
The trading of approximately 5.3 billion certificates under the European Emissions Trading System II (EU ETS II) will generate revenues that must be distributed both between and within EU member states. There are two options for distributing this revenue. First, the EU-wide Social Climate Fund (SCF) is designed to support vulnerable households, micro-enterprises, and transport users. This will take place from 2026 onwards. However, as the EU ETS II will not start until 2027, or according to the latest developments, probably not until 2028, and will therefore only generate revenue from then onwards, co-financing will be provided in 2026 and probably also in 2027 from revenue generated by the EU ETS I. Second, the remaining auction revenues will be distributed to the governments of the member states and used to support measures that contribute to achieving the EU’s climate targets. This structure is summarized in Figure 1 [1], [2], [17], [18].
Social Climate Fund (SCF)
To mitigate the risk of increased energy poverty resulting from the introduction of the EU ETS II, the SCF is designed to support disadvantaged households, micro-enterprises, and transport users. The SCF will operate from 2026 to 2032 and will have revenue from two different sources: Firstly, from the revenues of 50 million allowances from EU ETS I and, secondly, from revenues of 150 million allowances and an additional amount of allowances from EU ETS II. If the EU ETS II starts in 2027, a total of €65 billion will be made available by the SCF. If the EU ETS II starts in 2028, the amount will be €54.6 billion. The contribution to the SCF from revenues from EU ETS I in 2026, and, most likely, 2027 may not exceed a total of €4 billion. Furthermore, funds from the KSF can only be applied for if the EU member states contribute at least 25% co-financing to the measures being funded. Additionally, disbursement is conditional upon the submission of mandatory Social Climate Plans, which had to be filed by 30 June 2025 and must be aligned with national climate plans [1], [2], [3]. The distribution of SCF funds among EU member states is based on several criteria, including GDP per capita, historical household CO₂ emissions, the share of the population at risk of poverty, and total population size [1], [2]. The resulting percentage shares are shown in Figure 2. Poland receives the largest share at 17.6%, followed by France with 11.19%. Germany ranks sixth with 8.18%, corresponding to approximately €5.6 billion, or approximately €4.5 billion if EU ETS II starts in 2028.
According to Article 4 of Directive (EU) 2023/955, each EU member state may allocate a maximum of 37.5% of SCF resources as direct payments to financially vulnerable groups. Beyond this, the directive outlines several eligible measures [1], including:
- Support for building renovations
- Support for access to affordable, energy-efficient housing
- Contributions to the decarbonization of heating and cooling in buildings
- Provision of targeted, accessible, and affordable information, education, awareness, and advisory services
- Support for public and private entities in developing and delivering affordable energy efficiency solutions and appropriate financing instruments
- Access to zero- and low-emission vehicles and bicycles
- Incentives for the use of affordable and public transport
To facilitate the integration of these eligible measures into national Social Climate Plans, best practices have been compiled in [4]. Three examples are illustrated in Figure 3.
The potential effectiveness of these measures is also reflected in study [5], which considers the rollout of an EU-wide leasing platform for electric vehicles. Additionally, demand-responsive transport solu-tions are already being implemented in many rural regions across Europe [7].
National auction revenues
The remaining certificates and auction revenues from the EU ETS II that are not allocated to the Social Climate Fund (SCF) are distributed among EU member states based on their historical emissions in EU ETS II-relevant subsectors during the years 2016 to 2018, as illustrated in Figure 4 [2]. Germany receives the largest share at 23.7%, followed by France with 15.6% and Italy with 13.2% [6]. The size of each country’s share is primarily determined by its consumption of fossil fuels in the relevant subsectors.
The use of revenues from the EU ETS II is subject to the same requirements as those under the EU ETS I. These funds must be allocated in ways that contribute to achieving the EU’s climate targets. Eligible uses include improving energy efficiency, expanding renewable energy sources, supporting carbon capture and storage technologies as well as promoting the transition to sustainable mobility. Howev-er, priority should be given to measures that align with the objectives of the SCF and/or support the heating and transport transitions [2], [8].
Distribution effects
The fact that the SCF is capped at a fixed maximum amount, while the total revenues depend on the actual CO₂ price, means that redistribution effects among EU member states will vary according to future market prices. According to [6], the EU-wide average of funds available for redistribution per capita between 2027 and 2032 is estimated at €601.1 per EU citizen for a CO₂ price of €50/t CO2, €1,785.5 per EU citizen for €150/t CO2, and €2,969.9 per EU citizen for €250/t CO2. The share allocated to individual member states under these scenarios varies significantly, as shown in Figure 5, and in some cases behaves inversely. For example, while the share for Germany, Ireland, and the Netherlands increases with rising CO₂ prices, it decreases for Bulgaria, Croatia, and Romania.
Since the absolute per EU citizen value of the SCF for each EU member state remains constant, the share of EU ETS II revenues regulated for SCF use decreases significantly as the CO₂ price rises. As previously mentioned, SCF funds must be used to support vulnerable households, micro-enterprises, and transport users. To enable this, it is first necessary to define these target groups. They include citizens affected by energy or mobility poverty or those with low incomes, as well as individuals lack-ing the financial means to invest in climate-neutral technologies—such as heat pumps or electric ve-hicles—or to carry out energy-efficient building renovations [9]. The terms energy poverty and mobili-ty poverty are defined in EU Regulation 2023/955 as follows [10]:
- Energy poverty refers to a household’s lack of access to essential energy services that ensure an adequate standard of living and health. This includes sufficient heating, cooling, lighting, and energy for operating appliances, taking into account the national context, existing social policies, and other relevant measures.
- Mobility poverty refers to the inability or difficulty of individuals and households to afford the costs of private or public transport, or their lack of or limited access to transport services necessary for accessing essential socio-economic services and activities, considering national and spatial circumstances.
Despite the qualitative definitions of the target groups to be supported by the SCF, there are no official guidelines specifying which indicators should be used to identify these groups. Each EU member state must develop its own indicators and submit them to the EU [9]. The complexity of this task lies in the fact that all member states face the same absolute CO₂ price, while average per capita incomes differ by almost a factor of ten. This means that the relative burden of the EU ETS II is highest in countries with the lowest average incomes—even if these countries do not have the highest emission intensity in EU ETS II-relevant sectors [10]. Moreover, the literature uses and examines a wide range of parameters to determine vulnerable groups. An analysis of multiple indicators in [9] shows that the share of households identified as vulnerable can vary significantly depending on the chosen criteria. In this study, the share ranges from 1% to 43% of households, with differences between minimum and maximum values within individual countries being greater than those between EU member states. In summary, vulnerable groups exist in all EU member states, and analyzing the specific national context is crucial for defining distribution indicators that enable the implementation of the transition within the relevant target groups [9], [10].
From an overarching perspective, the relationship between revenues and expenditures under the EU ETS II varies across countries. In the scenario analyzed in [11], for example, Germany, Poland, and the Netherlands have lower revenues than expenditures, whereas in France, revenues exceed expenditures.
In summary, the distribution of national auction revenues and SCF funds within and between member states represents a highly complex structure. Its effectiveness and targeted impact must be managed by both the EU and individual member states to achieve the intended redistribution effects and enable a successful EU-wide transition.
Status quo of implementation
As mentioned earlier, the deadline for submitting Social Climate Plans by EU member states was June 30, 2025 [1]. However, as of mid-October 2025, no Social Climate Plan had yet been published on the European Commission’s website [12]. Nevertheless, REScoop.eu has analyzed the plans released so far by member states, assessing their transparency, the quality of proposed measures and investments, their focus on vulnerable groups, and their coherence with other instruments supporting the transition. As of October 18, 2025, 11 EU member states had been evaluated. If measures are appropriate for the target groups and coherent with other instruments, the assessment is in the green zone. Conversely, if measures are inadequate, target groups are inappropriate, and there is a lack of coherence with other instruments, the assessment is in the red zone. The orange zone is in the middle of the other two zones. The evaluation shows that Latvia and Poland are in the green zone, Bulgaria, Estonia, Greece, and Italy are in the orange zone, and Croatia, Denmark, France, Portugal, and Sweden are in the red zone. For some of these countries, more detailed evaluations are available in areas such as citizen participation, targeted groups, types of measures and investments, funding sources, and policy coherence. The classification of selected categories related to target groups and types of measures is shown in Figure 6. Notably, all countries have integrated appropriate definitions of energy poverty into their Social Climate Plans, while significant gaps remain in the integration of energy communities and heating and cooling systems [13].
Like several other countries, Germany did not submit its Social Climate Plan by the deadline [14]. In recent discussions, an additional measure considered—independent of the Social Climate Plan—was the introduction of a climate bonus (Klimageld) [2], [15]. Recently, an agreement was reached to pro-vide €3 billion in funding to promote electric mobility for low- and middle-income households, with part of this funding expected to come from the SCF [16].
Literatur
[1] EU Parlament. VERORDNUNG (EU) 2021/1119 DES EUROPÄISCHEN PARLAMENTS UND DES RATES vom 10.Mai 2023 zur Einrichtung eines Klima-Sozialfonds und zur Änderung der Verordnung (EU) 2021/1069: 2023/955, 2023.
[2] Forum Ökologisch-Soziale Marktwirtschaft und Öko-Institut e.V.. CO2-Preis in Deutschland. Umsetzung des ETS II und des Klima-Sozialfonds in Deutschland, 2024.
[3] Adolf und Linnemann. Der Europäische Emissionshandel. Ein Klimainstrument schreibt Industriegeschichte – Überblick, Zusammenhänge & Ausblick, Springer Vieweg, 2025.
[4] European Commission. SUPPORT FOR THE IMPLEMENTATION OF THE SOCIAL CLIMATE FUND. Note on good practices for cost-effective measures and investments, Brussels, 2024.
[5] T&E. How to turn ETS2 implementation into a success, 2025.
[6] Agora Energiewende und Agora Verkehrswende. Der CO2-Preis für Gebäude und Verkehr. Ein Konzept für den Übergang vom nationalen zum EU-Emissionshandel, 2023.
[7] Berchtesgadener Land. Rufbussysteme im Landkreis Berchtesgadener Land. https://www.lra-bgl.de/lw/sicherheit-verkehr/mobilitaet/rufbus/. Accessed 19 Oct 2025.
[8] EU Parlament. RICHTLINIE 2003/87/EG DES EUROPÄISCHEN PARALMENTS UND DES RATES vom 13.Okotber 2003 über ein System für den Handel mit Treibhausgasemissionszertifikaten in der Union und zur Änderung der Richtlinie 96/61/EG des Rates: 2003/87, 2003.
[9] Umweltbundesamt. Energy and transport vulnerability of households in the context of emissions trading. An analysis for 10 EU Member States, Dessau-Roßlau, 2024.
[10] Eden et al. Putting the ETS 2 and Social Climate Fund to Work. Impacts, Considerations, and Opportunities for European Member States, 2023.
[11] EWI. Auswirkungen und Preispfade des EU ETS2, 2025.
[12] European Commission. Social Climate Fund. https://climate.ec.europa.eu/eu-action/carbon-markets/social-climate-fund_en. Accessed 19 Oct 2025.
[13] REScoop.EU. Social Climate Fund Tracker. https://www.rescoop.eu/policy/financing-tracker/social-climate-fund. Accessed 19 Oct 2025.
[14] Bundesministerium für Umwelt, Klimaschutz, Naturschutz und nukleare Sicherheit. BMUKN-Stellungnahme zum EU-Klimasozialfond . https://www.bundesumweltministerium.de/meldung/bmukn-stellungnahme-zum-eu-klimasozialfonds. Accessed 19 Oct 2025.
[15] Friedrich Ebert Stiftung. Die CO2-Bepresiung im Umbruch. Was ist vom ETS2 zu erwarten, was kann ein Klimageld leisten?. FES Impuls, 2024.
[16] Electrive. Koalition einigt sich auf E-Auto-Förderung für kleinere und mittlere Einkommen. https://www.electrive.net/2025/10/09/koalition-einigt-sich-auf-e-auto-foerderung-fuer-kleinere-und-mittlere-einkommen/. Accessed 19 Oct 2025.
[17] European Council, Council of the European Union. Environment Council, 4-5 November 2025 – Main results. https://www.consilium.europa.eu/en/meetings/env/2025/11/04-05/. Accessed 16 Nov 2025.
[18] European Parliament. Press release 13-11-2025. EU 2040 climate target: MEPs want 90% emissions reduction in EU climate law. https://www.europarl.europa.eu/pdfs/news/expert/2025/11/press_release/20251110IPR31334/20251110IPR31334_en.pdf. Accessed 16 Nov 2025.
