Regional inequality of the European ETS-2

Abstract

This study examines the distributional impacts of the EU's second Emissions Trading System (ETS-2) on households across 1160 European regions, with a focus on the interaction between climate policy and social equity. Using household survey data, economic modeling, and spatial mapping, it evaluates the effects of a projected € 100 per ton CO2 price by 2030 on heating and transportation expenditures. Results indicate that low-income, rural households and larger families are disproportionately affected, with the strongest impacts observed in lower-GDP regions of Central and Eastern Europe. These findings confirm the regressive potential of carbon pricing and underscore the need for regionally tailored compensation measures. The Social Climate Fund (SCF), already established to mitigate such impacts, could benefit from these insights to guide the design and allocation of its resources, supporting an ETS-2 implementation that advances a climate transition which is both environmentally effective and socially equitable.