The Social Climate Fund: What Is It?
By Sebastian Baciu
As the climate emergency becomes increasingly acute, the European Union aims to become the first carbon-neutral economy by 2050. The ecological transition, however, is not cost-free and comes with several challenges that need to be addressed in order to ensure the social and economic welfare of the Union’s citizens.
This article will look at the Social Climate Fund, an initiative proposed by the EU Commission whose main goal is to alleviate the potential costs that the implementation of the new ETS could bring to low-income and vulnerable households .
The Social Climate Fund is part of the ‘Fit for 55’ package; the same package that extends the Emissions Trading System (ETS) to buildings and transport. It will enter into force in 2025. Together with the Innovation Fund (IF) and the Modernisation Fund (MF), the SCF aims to ensure a fair, prosperous and sustainable transition towards a carbon-neutral Europe, where growth is decoupled from resource use .
The SCF has been introduced as a measure to shield citizens from the social and distributional impacts of the ETS extension, which may lead to a rise in fuel bills . Member States will be offered assistance in providing temporary income support and implementing measures and investments that in the medium to long term will reduce the dependence on fossil fuels. The Fund will ensure energy efficiency, affordable and sustainable heating and cooling systems as well as low-carbon transport .
The SCF thus serves as a tool to tackle part of the social and distributional challenges of the green transition, helping combat inequality through climate action. The proposal ensures that the Union’s fundamental rights and principles of inclusion and non-discrimination are preserved . Carbon pricing can put additional pressure particularly on women, who represent 85% of single-parent families. Single-parent families are usually more susceptible to child poverty. Individuals suffering from a disability are also more at risk of poverty and social exclusion. The Fund will ensure that the wellbeing of these social categories will be taken into account throughout the green transition, which needs to be socially fair in order to avoid the further impoverishment of those already living in energy poverty. 50 million European households are currently in this situation .
The Social Climate Fund will provide EUR 72.2 billion of funding to the Member States for the period 2025-2032, using 25% of the revenues obtained from the EST extension to buildings and road transport fuels . Each Member State will be allocated a maximum amount, known as maximum financial allocation (MFA), which they can receive as part of the fund based on their gross national income (GNI) per capita, population, the population at risk of poverty living in rural areas, CO2 emissions from fuel combustion by households and the percentage of households susceptible to poverty with arrears on utility bills . Figure 1 shows the MFA expressed in euros per capita .
MFA expressed in euros per capita .
Eastern and Central European Member States such as Poland, Romania and Greece will receive proportionally the most funding from the SCF, which points to the uneven impact that a uniform carbon price has on different regions . For this reason, the development of an EU-wide programme ensures that all Member States can implement policy solutions to complement the climate action at the Union level. This is necessary to achieve a fast and just green transition where no one is left behind .
Before they can access the funds, Member States need to submit Social Climate Plans (SCPs), which include measures and investments to reduce the social impacts of carbon pricing taking into account national particularities. The Commission is responsible for approving or rejecting these SCPs after assessing them based on relevance, effectiveness, efficiency and coherence. Member States will only receive funding if they achieve the milestones and targets incorporated in their national Plans. The total costs of the SCPs are split between the funds received from SCF, which can only contribute a maximum of 50%, with the other 50% being covered by the Member States, including through revenues from auctioning allowances under the extended ETS .
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