Beyond irony: Fossil fuels in a Climate Fund

December 15, 2022

By Katie Treadwell
Senior Energy Policy Officer at WWF European Policy Office

IMAGE: WWF EU

EU Member States and Members of the European Parliament are planning a marathon of Christmas talks to reach agreement on a revamped European emissions trading framework, including a carbon price on road transport and heating, the so-called ETS2. The revenue generated can then be used to accelerate the transition, including a Social Climate Fund (SCF) that should help the most vulnerable households. But 35 organisations have written that they are worried this fund might turn out to be a poisoned Christmas present.

To be effective, the SCF should support transformative investments that address the structural causes of high energy prices, accelerating the transition to climate neutrality in the most socially fair way possible. This means it should support investments that uphold the ‘energy efficiency first principle’ such as those in home renovation and energy savings, public transport and renewable energy heating solutions.

But instead, Parliament, Commission and Council trilogue negotiators have slipped a boon for the fossil fuel industry into the fund and any attempt to exclude fossil fuels from the draft regulation was rejected. Their intentions are now clear; amendments tabled by the Commission during trilogues refer to the replacement of fossil fuel heating installations with a renewable-based appliance and/or a highly efficient installation, leaving an open door for fossil fuel installations. Likewise, as it has been proposed, the fund could finance low-emissions vehicles - code for hybrid vehicles which are still reliant on petrol or diesel.

A gift that becomes a heavy burden

Not only is fossil gas proving an expensive and insecure fuel, it is truly the worst choice for households in the most vulnerable situations, particularly those with the lowest incomes.

Locking vulnerable households into fossil fuel-fired heating systems will hit the lowest income households relatively hardest, as the cost of such fuels - and, over time, an increasing carbon price on them - will represent a higher share of consumption expenditure for these households.

IMAGE: Volodymyr Vorona

Using the limited SCF for fossil fuel investments will also gobble up resources that would be better spent on truly transformative investments. Indirectly, this will mean that households will need compensation support for high fossil fuel costs for longer, leaving less money available for investments in the transition, and making it more expensive overall.

Some argue that heat pumps cost more upfront and can require significant renovation to a building’s fabric. Or that hybrid vehicles can provide a reduction in emissions where electric vehicle charging infrastructure is insufficient.

But these arguments are a distraction: We need massive renovation of the EU’s building stock. Households in the most vulnerable situations do not deserve to be locked into expensive fossil fuels for decades more - especially when prices on carbon pollution will necessarily increase -while the wealthy refit their homes with heat pumps and top-notch insulation to cut their bills.

Likewise, the SCF should not be investing in hybrid vehicles that will soon be obsolete when the money would be better spent on long-term solutions: zero-emissions vehicles, charging infrastructure and all forms of public transport.

Big polluters versus vulnerable households

Another slap in the face for vulnerable households is how industry is being treated: while they cut down and cap the SCF budget, EU negotiators have pulled out all the stops to protect industry’s free permits to pollute. Compared to the SCF’s meagre €72.2 billion over 8 years, at a carbon price of around €75 per tonne, heavy industry is set to receive over 2.5 times this amount in free emissions allowances over the same timeframe (approximately €192 billion).

As EU negotiators go over their Christmas ETS and SCF shopping lists, will they agree on a cup of Christmas cheer for their citizens, or a poisoned chalice, locking those who can least afford it into fossil fuels?