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EU Announces Formation of the Social Climate Fund

Global Association for ESG

20 Dec 2022

€86,7 billion funding made available to help the most vulnerable Europeans

  • €86,7 billion funding made available to help the most vulnerable Europeans

  • National “Social Climate Plans” to address energy and transport poverty

  • Investments in decarbonization, sustainable transportation, and energy efficiency

Parliament and Council reached a provisional agreement to set up a new fund to help vulnerable citizens most affected by energy and transport poverty.

In order to help poor households, microbusinesses, and transport users who are severely impacted by energy and transport poverty, negotiators agreed to establish the Social Climate Fund (SCF). Only initiatives and investments that respect the maxim "cause no major harm" and seek to lessen reliance on fossil fuels will be supported.

Focus on tackling energy and transport poverty

After engaging with local and regional authorities, economic and social partners, and civil society, EU nations will be required to submit "Social Climate Plans," which will include two types of activities.
First, up to 37.5% of the expected total cost of each national plan, the Fund would finance interim direct income support measures to address the rise in road transport and heating fuel prices. The use of public transportation and shared mobility services will also be included, along with long-term structural expenditures such as building renovation, decarbonization strategies, and the incorporation of renewable energy sources.

Timeline and Financing

The SCF will begin in 2026 at the request of Parliament, one year prior to the so-called "ETS II" expansion of the Emissions Trading System (ETS) to include buildings and road transportation. The ETS extension may be delayed by one year if energy prices are unusually high.
The initial funding for the fund will come from proceeds from the auctioning of 50 million ETS allowances, which are expected to bring in about €4 billion. The SCF will receive funding from the auctioning of ETS II allowances up to a maximum of €65 billion once the ETS extension goes into effect, with an additional 25% coming from national resources, for a projected total of €86,7 billion.
On Monday, December 19, 2022, at 10.30 CET, there will be an online press conference with EP negotiations regarding the outcome of the ETS and SCF provisional accords.


Esther de LANGE (EPP, NL), a co-rapporteur, stated: "With this agreement, we hope to secure a just transition to energy for everybody. The Social Climate Fund will provide assistance to needy households during the energy transition, such as through insulation rebates or switching to more environmentally friendly transportation. It was crucial for Parliament that the fund not serve as a free pass for the nations. I'm glad we were able to make sure the funds will reach the most disadvantaged people in the best possible circumstances.

With this agreement on the Social Climate Fund, we are the closest we have ever been to guaranteeing that the climate transition would be more equitable and socially inclusive, according to co-rapporteur David CASA (EPP, MT). The member states will soon have billions at their disposal to help millions of homes and small companies with their energy demands. This is good news for our citizens, the environment, and our energy demands.
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