The European Union, as part of its ambitious climate goals, is reducing greenhouse gas emissions by 55 % by 2030 compared to 1990 levels and achieving climate neutrality by 2050, committed to a broad transformation. A key tool to achieve these goals is EU Emissions Trading System 2 (ETS2), which will be fully operational in 2027. ETS2 is a new, stand-alone ETS system targeting sectors where progress in decarbonisation has historically been limited – notably road transport, buildings and other industries not covered by the original ETS1This study, developed by Ricardo for the European Commission, aims to support Member States in designing and implementing effective, complementary measures that address key barriers and promote decarbonisation in the early years of ETS2.

ETS2 as part of a broader policy mix and addressing social impacts

ETS2 is not an isolated policy, but part of a broader policy mix of national and EU-wide measures. The aim is to ensure the most cost-effective approach to decarbonisation. Carbon costs will be included in fuel prices, meaning that the financial burden will be passed on to final consumers – households, drivers, businesses and public services, changing price signals and incentivising low-carbon choices. However, the EU recognises the challenges that extending carbon pricing to new sectors may pose for the most vulnerable groups, including households at risk of energy poverty, micro-enterprises and vulnerable transport users.

To mitigate these impacts and ensure a just and equitable transition, the EU has established Social Climate Fund (SCF), which will be financed mainly from ETS2 revenues. The SCF will provide financial support to Member States, subject to specific conditions, to implement targeted national measures that support both climate objectives and social fairness. In addition, Member States will be obliged to use all remaining national revenues from ETS2 for climate and social measures. Other key EU legislative initiatives include the Alternative Fuels Infrastructure Regulation (AFIR), CO2 standards for new passenger cars and light commercial vehicles, the Energy Efficiency Directive (EED) and the Energy Performance of Buildings Directive (EPBD).

Best practices and measures in individual sectors

The study identified 21 proven measures that are characterized by cost-effectiveness, replicability, scalability and potential for high short-term impactThese measures are divided into three main sectors:

1. Road transport: Most measures in this sector focus on addressing concerns related to charging infrastructure and relatively high costs for low-emission vehicles compared to conventional options. These include economic instruments (e.g. taxes and fees based on emissions, tax advantages for zero-emission vehicles and disadvantages for internal combustion vehicles) and regulatory instruments (e.g. transparency of prices for public charging). Three of the eight measures are aimed at shift in mode of transportation in the shorter term, supporting a shift from a car-centric model to more diverse and sustainable options, including cycling, public transport and rail, and reduced and simplified public transport ticket prices.
2. Buildings: The selected measures primarily address two key obstacles: high initial costs and limited consumer awarenessThese are addressed through a combination of economic incentives and information tools, both aimed at increasing energy efficiency. Examples include measures to reduce electricity prices for specific technologies (e.g. heat pumps), interest-free and state-guaranteed loans for energy efficiency measures, subsidies for building renovation and tax breaks for energy-efficient renovations and renewable heating systems.
3. Industry: The proposed measures combine financial and technical support with educational and capacity building initiatives, which collectively address some of the key challenges faced by smaller companies in the decarbonisation process. In addition, innovation support is included, focusing on quasi-mature solutions and early stage development of emerging technologies. These include financial schemes to support energy efficiency investments, voluntary energy efficiency agreements, energy audits and national investment funds supporting research and innovation.

Measures with high potential for the future

In addition to these 21 measures, three options with significant future potential have been identified. These include: heat pump leasing a carbon cost sharing law (e.g. in Germany) that address initial investment costs and the division of responsibilities between landlords and tenants. The third measure focuses on development of urban cycling infrastructure to promote a change in transport mode, which can lead to significant emission reductions and multiple benefits such as improved air quality and population health.

The list of measures represents a diverse and balanced set of policy instruments that are cost-effective, scalable and aligned with the EU's climate objectives. Member States are invited to build on these examples, integrate them into coherent national strategies and ensure continuity through long-term planning. Political stability will be essential for households, local communities, local authorities and businesses to plan with confidence, make informed decisions and invest in the adoption of low-carbon technologies. This approach is key to achieving the climate ambition and just transition objectives that are at the heart of the European Green Deal. JRi