Why direct payments are essential to make household carbon pricing work in the EU

As the EU prepares to roll out its new carbon price for transport and heating (ETS2), calls to delay or weaken the system are growing louder. Without careful design, this crucial climate policy risks fuelling public backlash and political resistance.

This paper argues that part of ETS2 revenues should be returned to citizens through direct payments. Alongside investments in clean alternatives like heat pumps and public transport, these payments can protect vulnerable households, reach all those affected by higher carbon prices, and strengthen social justice. It’s a key measure to boost public support and make carbon pricing fairer, more effective, and politically sustainable.