On 14 July 2021, the European Commission proposed the creation of a new Social Climate Fund to help EU citizens meet the social and economic costs of the climate and energy transition. The proposed regulation was part of the 'fit for 55' legislative package linked to the European Green Deal. The 'fit for 55' package aims to revise climate and energy legislation in a way that supports the objective of -55 % reductions in EU greenhouse gas (GHG) emissions by 2030, itself a necessary intermediate step towards the ultimate goal of net zero GHG emissions by 2050. Both 2030 and 2050 targets are enshrined in the EU Climate Law of June 2021.

As part of the 'fit for 55' package, the Commission proposed a revision of the ETS directive that would extend emissions trading to the building and road transport sectors, where the pace of decarbonisation has so far been inadequate for meeting the EU's climate action objectives. Emissions from these sectors will not be covered by the existing EU Emissions Trading Scheme (ETS), but by a new and separate emissions trading system linked to it. The Social Climate Fund is being introduced to address any social impacts that arise from this new system of emissions trading, and its twin objectives are to finance temporary direct income support for vulnerable households, and to support measures and investments that reduce emissions in road transport and buildings sectors. These in turn should reduce costs for vulnerable households, micro-enterprises and transport users.

The new emissions trading system will place a yearly declining cap on emissions from road transport and buildings sectors, within which all allowances will be auctioned. The size of the future Social Climate Fund will correspond to a dedicated share (25 %) of the revenues from the auctioning of emission allowances under the new system. The Fund should provide funding to Member States to support measures and investments in increased energy efficiency of buildings, decarbonisation of heating and cooling of buildings, including the integration of energy from renewable sources, and granting improved access to zero and low-emission mobility and transport. These measures and investments need to principally benefit vulnerable households, micro-enterprises or transport users. In certain cases, the Fund will also be able to finance temporary direct income support for vulnerable households.

The Commission's proposal would allocate a total of EUR 72.2 billion (in current prices) to the Fund over the 2025-32 period. This will require an amendment to the 2021-27 Multiannual Financial Framework as well as the Own Resources Decision, in order to accommodate an additional EUR 23.7 billion of EU spending over the 2025-2027 period. This spending should be frontloaded to precede and accompany a smooth introduction of the new emissions trading system for the building and road transport sectors, which should start to take effect from 2026 onwards and will eventually become the main financing mechanism for the Fund. In principle, the Fund should receive 25 % of the expected revenues from the inclusion of buildings and road transport within the scope of the new ETS Directive.

The Parliament referred this file to the Committee on Environment, Public Health and Food Safety (ENVI) and the Committee for Employment and Social Affairs (EMPL), in order to prepare a joint report under Rule 58 (European Parliament Rules of Procedure). The ENVI committee appointed MEP Esther De Lange (Netherlands, EPP) as its co-rapporteur, while EMPL appointed MEP David Casa (Malta, EPP) as its co-rapporteur. They published a joint draft report on 1 February 2022, which was subsequently opened to amendments. The final report was adopted by the joint committee on 18 May 2022. The file was subsequently referred to plenary, where it was endorsed on 22 June 2022.

The ENVI-EMPL joint report expects national social climate plans to prioritise investments and incentives in clean mobility over temporary direct income support measures, with the latter limited to 40 % of fund expenditure and phased out altogether by 2032. The joint report adopts definitions of ‘energy poverty and ‘mobility poverty’, makes disbursement of funds linked to countries respect for the rule of law, and asks that national plans consider in particular the socioeconomic challenges of islands and outermost regions.

The Council of the EU adopted a general approach on 29 June 2022, which agreed that the fund should be part of the EU budget and fed by external assigned revenues up to a maximum amount of 59 billion euro. The fund would be established over the period 2027-2032, to coincide with the entry into force of the ETS for the buildings and road transport sectors, with retroactive eligibility of expenditure from 1 January 2026. The Council decided to apply a ceiling of 35 % of the estimated total costs of social climate plans to the possibility for Member States to offer temporary direct income support; agreed that the fund would benefit all member states; and kept the allocation method proposed by the Commission. However, the Council's general approach decided not to retain the national contribution (co-financing) foreseen in the Commission proposal.

Trilogue negotiations concluded on 18 December 2022 with a provisional agreement, which was formally endorsed by the Parliament in its plenary session on 18 April and by the Council on 24 April 2023. The final text foresees that the SCF (2026-2034) becomes a part of the EU budget that is fed by external assigned revenues (mostly emissions trading allowances), up to a maximum of 65 billion Euros. The use of external assigned revenues avoids having to reopen the 2021-2027 MFF. Member States would need to co-finance 25% of the SCF. A ceiling of 37.5% would apply to the share of temporary direct income support financed under national social climate plans. The adopted text was published in the Official Journal of the EU on 16 May 2023.

References

• EP Legislative Observatory, Procedure file on Social Climate Fund. 'Fit for 55 package', 2021/0206(COD)  
• European Commission, Proposal for a Regulation of the European Parliament and of the Council establishing a Social Climate Fund, COM(2021)568
• European Parliament, First reading amendments on the proposal for a regulation of the European Parliament and of the Council establishing a Social Climate Fund, 2021/0206(COD)  
• Council, 'Fit for 55': 'Council and Parliament reach provisional deal on EU emissions trading system and the Social Climate Fund', Press Release, 18 December 2022. 
• European Parliament, Fit for 55: Parliament adopts key laws to reach 2030 climate target, Press Release, 17 April 2023
• Regulation (EU) 2023/955 of the European Parliament and of the Council of 10 May 2023 establishing a Social Climate Fund and amending Regulation (EU) 2021/1060

Further reading

• European Parliament, EPRS, Social Climate Fund: Fit for 55 package, Briefing, EU Legislation in Progress, June 2022.
• European Parliament, EPRS, Social Climate Fund, At-a-Glance, April 2023.

Author: Agnieszka Widuto, Members' Research Service, legislative-train@europarl.europa.eu

Visit the European Parliament pages on climate change.