Once outright climate denial lost credibility, some political and industry groups shifted tactics. Their new narrative: climate action hurts people’s wallets. This article debunks the main economic myths being used against the EU’s new carbon price for heating and transport fuels (ETS2).
Authored by Katalin Tarr, Policy Officer at Clean Air Action Group (Hungary), edited by Alberto Vela.
ETS2 under attack
The EU’s new Emissions Trading Scheme for buildings and road transport (ETS2) is one of the most important climate tools of this decade —but it is designed to do much more than cut emissions.
ETS2 is a cap-and-trade system that sets an overall limit on CO₂ emissions from heating and transport fuels. Fuel suppliers must buy allowances that reflect the carbon content of the fuels they place on the market, a cost they are expected to pass on consumers. This will gradually make fossil fuels more expensive, creating a clear financial incentive to switch to cleaner alternatives.
Crucially, ETS2 will also generate billions in revenue that can be redistributed to households or invested in clean technology, energy efficiency, and public transport. In practice, ETS2 encourages greener choices for transport and heating, cuts emissions, generate revenues to fund the transition and ensures that the costs of fossil-fuel use are borne by those who burn the most —rather than by society as a whole.
It is no surprise, then, that ETS2 has become a prime target for transition laggards. The European Parliament and Environment Ministers have both suggested delaying its start by one year, to 2028. Several countries, such as Hungary, Bulgaria, Czechia, Poland, and Slovakia, openly say they won’t implement it at all. Nineteen governments have asked to weaken it.
Their main arguments: ETS2 will raise living costs, fuel inflation, and hit vulnerable groups. But evidence from multiple studies, and real-world experience, tell a very different story.
ETS2 can reduce social inequalities
The current energy order is deeply unfair. Colossal amounts of taxpayers’ money are spent on fossil fuel subsidies that disproportionately benefit wealthier households, which consume far more energy, while poorer households remain exposed to fossil price hikes.
ETS2 would help correct this imbalance. By reducing fossil subsidies and raising revenue through carbon pricing that governments can —and must— redistribute this money to compensate households and reduce energy poverty. Even if revenues were redistributed equally to all citizens, regardless of income, the outcome would be fairer than today’s system which pushes a lot of households to energy poverty across the bloc.
Countries with very different political context —from Austria or Canada, to Hungary, Iran, and Switzerland— have already demonstrated the efficiency and clear advantages of redistribution through direct payments to citizens. Delaying ETS2 simply prolongs a system in which poorer households subsidise the energy consumption of the rich.
The longer we postpone the introduction of ETS2 and redistributive models, the longer we maintain an unfair system that benefits the wealthy at the expense of those with the least.
ETS2 can boost economic resilience
Claims that carbon pricing harms the economy are not supported by evidence.
Studies such as a recent OECD–UNDP report show that ambitious carbon pricing can increase GDP. Well-designed revenue recycling and green investment deliver modest near-term growth and even greater long-term benefits. History backs this up: the first EU ETS phase cut emissions by 10% without harming jobs or business revenues.
Fears of inflation are similarly overstated. Carbon pricing raises prices, not overall costs – because society already pays for fossil fuels indirectly through taxes, subsidies, health impacts and climate damage. With fair redistribution, household purchasing power does not fall. Support must also target energy and transport poverty to ensure no one is left behind.
Businesses, too, would see overall costs remain stable, with a shift toward a more climate-friendly firms. That would mean, for example, reducing taxes on sustainable products and services, such as organic food or cargo bike delivery. while providing subsidies for key sectors like energy efficiency, building renovation, public transport, etc.
Given that fossil fuels receive an astonishing $13 million in global subsidies every minute, rebalancing the system is long overdue. These vast direct and indirect support allow fossil fuel-based businesses to flourish, while cleaner firms face a disadvantage. A proper redistribution of the revenues –made possible by ETS2– would give a competitive edge to cleaner firms.
Climate change itself is now a major driver of inflation: droughts, floods, fires and storms are taking an enormous toll on human resources, buildings, agriculture and energy and transport infrastructure. This climate-driven destruction has been pushing up food prices across the world.
EST2 can drive innovation and jobs
ETS2 will generate significant revenues for green infrastructure, clean-tech innovation and job creation – while supporting households with compensation.
The European Parliament Research Service estimates ETS2 could raise €342–570 billion between 2027 and 2032, with up to €505 billion earmarked for climate and energy action.
Studies and past experience show that ambitious climate policy stimulates innovation, strengthens competitiveness and creates jobs, provided revenue is reinvested. There is no doubt that the introduction of ETS2 will have similar effects. Naturally, the green transition will not be uniform; so support for re-skilling and up-skilling will be essential.
ETS2 can prevent costly damages
According to the European Commission’s Impact Assessment, ETS2 would substantially cut fossil fuel imports, reducing price volatility and improving energy security.
It would also help prevent climate-driven economic damage. A 2025 analysis by the European Academies Science Advisory Councils warns that climate impacts could shrink EU GDP by 2.3% by mid-century —potentially triggering a permanent recession.
Beyond carbon reductions, ETS2 would cut air pollution, noise, and other environmental harms linked to fossil duels. These have a significant toll in our economies: the EU already loses around €55 billion every year by failing to meet environmental targets.
ETS2 makes economic sense
Even if climate change weren’t a factor, ETS2, alongside fair compensation measures, would still be essential. Postponing or weakening it would prolong a system that subsidises the rich at the expense of the poor. Economically, undermining the carbon pricing mechanism protects the most polluting industries, wastes public money and delays the transition to a more resilient economy.
But EU States don’t need to wait to ETS2 to take action. Countries without emission trading system or carbon tax for heating and transport can introduce it now, paired with household compensation. Those that already have such systems can strengthen them —achieving the same benefits as ETS2 without delay.
