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Under the planned expansion of the Emissions Trading system (ETS), known as ETS-2, the average EU household will have to budget for around EUR 363 more per year in carbon tax. That is equivalent to just 0.6% of disposable income, though that share rises toward 1% of disposable household income in countries such as Croatia, Estonia, Hungary and Latvia.

“The central problem is that the current proposal includes a cap on the trading price of EUR 50 per carbon certificate until 2030, which is the EU’s “Fit for 55” target date to reach its goal of reducing 55% of CO2 emissions relative to 1990,” says Arne Platteau, analyst at Scope ESG.

“The cap is well below the carbon tax needed to keep the increase in global temperatures to below 1.5°C, estimated by the International Energy Agency at nearly EUR 250 per metric ton of greenhouse-gas emissions,” adds Platteau.

Table 1: ETS-2 costs (EUR per household) vs IEA-estimated required net-zero tax

Source: Scope ESG

If ETS-2 was to significantly raise the carbon cap towards EUR 250, it would provide a stronger incentive to reduce CO2 emissions. However, EU households and small businesses with the fewest resources and poorest access to alternatives could be hit with the heaviest cost of adapting to the energy transition in transport and real estate.

The EU’s environmental and economic challenge in the building and transport sectors is most urgent in Central and Eastern Europe, in terms of the scheme’s per capita costs, though not negligible in Western Europe.

“Countries in Eastern Europe face more challenges if they are to replace their carbon consumption by other means, i.e., greater reliance on renewable energy supplies and use of public transport,” says Platteau. “Construction of near-zero emissions buildings lags that of Western Europe and thus offers little room for households to find low-carbon alternatives while extent of public transport networks, notably rail infrastructure, is relatively modest.”