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Exploring the trade-offs in different paths to reduce transport and heating emissions in Europe

In this analysis, commissioned by the European Climate Foundation, are evaluated the socio-economic implications of potential routes to decarbonise transport and heating in Europe.

25 May 2021

Today, as heads of state discuss climate and in particular the future of the Effort Sharing Regulation and the potential extension of the Emissions Trading System to heating and transport fuels, Cambridge Econometrics has published some relevant new research.

They evaluated the socio-economic impacts of two different routes to decarbonize transport and heating in Europe:

  1. Via an Emissions Trading System with different options for revenue recycling.
  2. Via a regulation-focused mix of policies.

Some key findings:

  • If the EU would only rely on a carbon market to achieve emission cuts in road transport and buildings, the carbon price would need to reach an estimated 180 euros/tCO2 by 2030.
  • This could lead to a doubling of home (gas) heating bills for low-income households. In France, gas heating costs could increase by 92% (by 2030). In Germany, where gas prices are relatively low today, gas heating bills would increase by 135% (by 2030). In Poland, gas heating could cost 70% more and coal 188% more (in 2030).
  • If instead, an approach is chosen based on increased national climate targets and a mix of policies to meet the EU 2030 climate goals, disposable incomes could increase across society and the economy could grow by 2%.
  • Carbon pricing can play a role in these sectors, but the raised revenues would need to be invested in climate measures (e.g. in retrofitting buildings) and recycled back to citizens in order to address the aforementioned distributional impacts. Carbon pricing should also only play a complementary role to e.g. minimum energy performance standards and fossil fuel boiler phase-outs, and be phased-in (so prices are capped) under a strengthened ESR.

T&E did a nice twitter thread here and here you can find an op-ed by Marcin Korolec (former Polish environment minister) on the topic. 

Soon RAP will also publish a report on carbon pricing in the building sector, perhaps a topic to discuss during the next heating hub meeting.

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