The European Union has agreed to unlock €3 billion in early-stage financing to accelerate investments in the decarbonisation of buildings, marking a key preparatory step ahead of the launch of the EU’s new emissions trading system for buildings and road transport in 2028.
The funding will be made available through a newly approved ETS2 Frontloading Facility, jointly developed by the European Investment Bank and the European Commission. The mechanism is intended to support EU Member States that have already transposed ETS2, allowing them to pre-finance eligible programmes before revenues from the new emissions trading system begin to flow.
While ETS2 covers both buildings and road transport, the Commission confirmed that the frontloaded funding will mainly be directed toward investments in cleaner heating and cooling systems and measures to reduce energy demand in homes and other buildings across the EU. These investments are expected to play a central role in lowering emissions from the building sector, which remains one of the largest sources of energy consumption in Europe.
According to the Commission, the facility is designed to ensure that the transition under ETS2 is both socially fair and economically efficient, while supporting the EU’s broader climate and energy objectives. Low- and middle-income households are identified as the primary beneficiaries of the measures supported through the facility, with funding aligned with the objectives of the Social Climate Fund and national Social Climate Plans.
Commissioner for Climate, Net-Zero and Clean Growth Wopke Hoekstra said the facility would make €3 billion available to Member States “to support low and middle income households in the clean transition.” He added that the aim is to accelerate the deployment of solutions that reduce energy and transport bills, including heat pumps, and that the funding forms part of a broader package of measures to ensure a smooth and socially fair introduction of ETS2. The facility will complement, rather than replace, funding provided under the Social Climate Fund.
The European Commission stated that the ability to frontload financing is intended to prevent delays in the rollout of decarbonisation measures in the building sector, which might otherwise occur if Member States had to wait until ETS2 revenues are generated after 2028. By enabling early investment, the facility is expected to help national authorities launch programmes sooner and scale up deployment of energy-efficient technologies in residential and other buildings.
Although the facility can also support certain transport-related measures, the Commission emphasised that cleaner heating and cooling and reduced energy demand in buildings will be the main areas of investment. These measures are seen as critical to preparing the building stock for the introduction of carbon pricing under ETS2.
The Commission also noted that there is the possibility of a top-up to the ETS2 Frontloading Facility at a later stage. Any such expansion would form part of the Commission’s targeted measures to ensure a gradual and orderly start to the new emissions trading system.
The ETS2 Frontloading Facility is one of several steps being taken at EU level to align climate policy implementation with social considerations, while accelerating emissions reductions in sectors that will soon fall under the new trading system.