Making the ETS2 Socially Acceptable through Carbon Revenue Redistribution and Investments

The introduction of a CO2 price for housing and mobility is a key measure to ensure that the EU will be able to achieve its climate objectives. However, without adequate accompanying compensation and investment measures, additional costs for citizens will not be socially acceptable and might lead to a reversal of climate policies. This chapter thus sets out to make recommendations on how to best design accompanying policies in the context of the introduction of the ETS2, which will broaden the scope of the European Emissions Trading System to new economic sectors (road transport, buildings, and small industries). To draw lessons from already existing instruments, this chapter studies the carbon taxation schemes of France, Germany, and Austria as well as their accompanying redistribution and investment measures. Based on this analysis, it highlights the importance of strict earmarking of ETS2 revenues and the visibility of support measures, and discusses how to best target citizens through redistributions mechanisms and balance compensation with investment tools.