The European Heat Pump Association (EHPA) supports the introduction of a European CO2 price for heating fuels as essential to correct the price mechanism for heating of buildings and industrial processes. The EU Emissions Trading System for Buildings and Transport (ETS2), as proposed by the Commission in the July 2021 Fit-for-55 package, is an appropriate step towards a more balanced energy price system, but a careful design is necessary.
Today, EHPA released a position paper which presents how essential is carbon pricing for heating fuels and therefore, should be part of policy mix to decarbonise buildings. The position paper investigates how carbon pricing works and which should the policy measures be in order to complement this policy instrument. Carbon pricing is the only viable instrument to reach emission reduction targets and create a revenue stream to finance it. Therefore, more discussions are needed on the design of the ETS2, notably on its pricing mechanism and implementation.
The main findings of the paper are:
- Carbon pricing and the SCF are essential building blocks of the policy house of the European Green Deal.
Currently discussed policy alternatives can be considered complementary, but cannot replace a carbon price, as they do not create their own revenue streams.
The proposed ETS2 will accelerate the green transition and reduce the risk of energy poverty
The Social Climate Fund needs to be structured in such a way that supports poorer households to pay for operating costs of heating.
Further considerations are needed on the income distribution of the ETS2, the equal taxation of energy and the predictability of the ETS2 price.
There is a strong link between carbon pricing and energy taxation. According to the EHPA’s September 2021 report on energy taxation, decarbonising heating is made difficult as a result of taxation levels and levies applied on electricity prices. They are often less burdensome on fossil energy and give a disadvantage to electricity-based solutions.
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