The Impact of the Proposed EU ETS 2 and the Social Climate Fund on Emissions and Welfare
The European Union will soon decide on the introduction of a separate Emissions Trading System for the buildings and road transport sectors (ETS2) and a Social Climate Fund (SCF) to mitigate its potential negative impact on households.
Under the ETS2, suppliers of fuels for buildings and road transport will have to purchase emissions allowances, with the total number of allowances available gradually decreasing over time. This would expose households to a carbon price and should thus incentivise them to seek lower carbon alternatives.
This paper examines the literature for evidence on the effectiveness and presents the findings of a novel modelling exercise analysing the impact of a theoretical carbon tax levied on all consumption goods.