EPICO KlimaInnovation, in collaboration with Frontier Economics, has published a new policy report on strengthening the EU ETS 2 through Revenue Frontloading.
From 2027, the EU ETS 2 is set to include emissions from the buildings and road transport sectors – two areas that together account for over 40% of EU-wide emissions. This would make the Emissions Trading System a central tool for achieving the EU’s climate targets.
However, the introduction of this market-based climate policy instrument is under increasing pressure: Poland, Czechia and Bulgaria are calling for a delay, citing concerns over high carbon prices and the resulting social burdens. Meanwhile, preparations for the Social Climate Fund (SCF) – intended to deliver targeted household support from 2026 – are falling behind. Adding to the uncertainty is the highly unpredictable trajectory of CO₂ prices from 2027 onwards, both politically and economically.
The European Commission must act to ensure that implementation proceeds as planned – without losing political support.
What our study proposes
The policy report presents Revenue Frontloading as a practical and immediately implementable mechanism: Member States could gain early access to EU ETS 2 revenues – up to €50 billion between 2025 and 2027 – through an EU-level facility involving the European Investment Bank (EIB). This is based on a carbon price assumption of €60 per tonne.
This approach would allow Member States to make early investments in grid infrastructure, sustainable transport, and social compensation measures – without distorting the carbon price signal or generating new EU-level debt.
It also avoids complex legal implementation hurdles while enabling targeted support for low-income households.
Why it matters
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Macroeconomic modelling of the effects of Revenue Frontloading – with a focus on Central and Eastern European Member States
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Political economy scenarios showing how EU ETS 2 can be introduced on schedule – without price caps or delays
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Strengthening the carbon price signal by avoiding market distortion
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Up to €50 billion in additional funding available from 2025 for infrastructure and social investments – without further burdening national budgets
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Targeted investment in the buildings and transport sectors – where transformation needs are most urgent
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Enhancing the credibility of the EU Emissions Trading System as a core climate policy instrument
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Compatibility with a broader policy mix that helps mitigate social hardship, reduce price volatility, and improve political feasibility