Revenue recycling refers to the deliberate use of carbon pricing proceeds to return value to households, businesses or public infrastructure, for example through tax reductions, direct transfers or structural public investment. With the introduction of the Emissions Trading System for buildings and road transport (ETS2), the Social Climate Fund (SCF), established by Regulation (EU) 2023/955, provides the EU framework for revenue recycling at national level. Together with mandatory 25% national co-financing, the fund is expected to mobilise at least €86.7 billion between 2026 and 2032.

Developed as part of the JustReno project, this report introduces the main concepts and delivery mechanisms of revenue recycling and the EU policy framework around ETS2 and the SCF. It looks at how identifying vulnerable households and worst-performing buildings relates to Social Climate Plans, and reviews good practice cases from Ireland, Austria, British Columbia, Chile, Denmark, Switzerland and Germany. It also addresses common myths about carbon pricing and ETS2.

A central finding of the report is that the effectiveness of revenue recycling depends above all on the quality of Social Climate Plan design. Based on this evidence, the report sets out recommendations for Member States preparing their Social Climate Plans. They cover identifying vulnerable households and worst-performing buildings, choosing delivery mechanisms, securing institutional and legal frameworks, and making revenue recycling visible.

The report was written by Emily Bankert, Buildings Performance Institute Europe (BPIE).

The full report is available to download below.