Social Climate Fund: Parliament’s ideas for a just energy transition  

As part of its efforts to achieve carbon neutrality by 2050, the EU introduced further requirements for reducing emissions in construction and transport. The new rules will stimulate Europeans and businesses to invest in alternative energy sources, better insulation and clean transport.

In order to ensure that the climate transition will be fair and inclusive, the EU has created the Social Climate Fund. The fund will help vulnerable households, small business and transport users who are particularly affected by energy and transport poverty.

It is part of the Fit for 55 legislative package, which aims to achieve the objectives of the European Green Deal, reducing greenhouse gas emissions by 55% by 2030.

Check out what the EU is doing to reduce carbon emissions

Tackling energy poverty

The new legislation aims to establish common definitions for energy poverty and mobility poverty across the EU.

Energy poverty refers to households which are unable to access essential energy services that allow for a decent standard of living. Mobility poverty refers to households that have high transport costs or limited access to affordable modes of transport.

During the negotiations on the fund with EU countries, Parliament sought to focus on challenges faced by islands, mountainous regions and less-developed and remote areas. It also wanted to block access to the fund for countries that do not respect fundamental rights or the rule of law.

At Parliament’s request, the Social Climate Fund will start in 2026, one year before the Emissions Trading System is extended to cover buildings and road transport. If energy prices are exceptionally high, the extension may be postponed by one year.

Part of the Social Climate Fund will be funded by auctioning the allowances coming from the extension of the Emissions Trading System (up to €65 billion), with an additional 25% covered by national resources (amounting to an estimated total of €86.7 billion).

Support will go only to measures and investments that respect the principle of "do no significant harm" and aim to reduce fossil fuel dependency.

After reaching a deal with EU countries in December to create this new fund in 2026, Parliament adopted it in April 2023. It became applicable and legally binding in May 2023.

How can the Social Climate Fund help you?

The Social Climate Fund should finance concrete measures to address energy and mobility poverty, both in the short and in the longer term, including:

• Reduction in energy taxes and fees or provision of other forms of direct income support to address the rising prices of road transport and heating fuel. This would be phased out by the end of 2032
• Incentives for building renovation and for switching to renewable energy sources in buildings
• Incentives to shift from private to public transport, car sharing or cycling
• Support for the development of a second-hand market for electrical vehicles

Find out more on financing the green transition

• Just Transition Fund: helping EU regions adapt to green economy

• Europe’s plan to finance climate action

• EU defines green investments to boost sustainable finance