The EU Social Climate Fund Will Provide €65 Billion to Member States by 2032

The European Union is preparing for the next phase of emissions trading for buildings and road transport. At the same time, it is establishing one of the largest social policy instruments to support the achievement of its climate objectives. How does Latvia fit into this picture, and what do the plans of its neighbouring countries reveal?

From 2028, the European Union will launch ETS2, the new emissions trading system for buildings and road transport. Its objective is to reduce the use of fossil fuels by gradually increasing the cost of CO₂ emissions. However, this also raises the risk that higher energy and transport costs will disproportionately affect lower-income households. To address this challenge, the European Union has established the Social Climate Fund (SCF), with a total budget of €65 billion for the period 2026–2032. Including national co-financing, total investments could exceed €86.7 billion.

Figure 1. Allocation of funding under EU Social Climate Fund plans by country, 2026–2032.

This development is particularly significant for Latvia. The Baltic States continue to face relatively high levels of energy poverty, a large share of multi-apartment residential buildings, and a strong dependence on private cars outside major urban areas. Consequently, Latvia is expected to use the Social Climate Fund primarily to improve energy efficiency, renovate residential buildings, and enhance access to sustainable mobility. Latvia has already submitted its Social Climate Plan to the European Commission.

Lithuania provides an interesting point of comparison. Its Social Climate Plan for 2026–2032 allocates approximately €884 million, equivalent to around €306 per capita. The largest investments are directed towards the renovation of apartment buildings, improving the energy efficiency of single-family homes, expanding cycling infrastructure, and purchasing electric buses. In addition, Lithuania has designed targeted support measures for vulnerable rural households.

Sweden, by contrast, has adopted a very different approach. With a budget of €533 million, the Swedish plan focuses almost entirely on the transport sector. Funding is targeted at low-income households and remote regions where public transport availability is limited. This reflects Nordic policy priorities, where building energy efficiency has largely been addressed in previous years, while transport decarbonisation has become the primary challenge.

The analysis of national plans reveals another noteworthy trend. More than 80% of transport-related investments are allocated to public transport and transport infrastructure. Funding is directed towards the development of bus and rail systems, demand-responsive transport services, mobility vouchers, and active mobility projects such as cycling infrastructure. Most Member States are not prioritising large-scale subsidies for electric vehicle purchases; instead, they are focusing on socially targeted mobility solutions.

A similar pattern can be observed in the buildings sector. Approximately two-thirds of the funding allocated to buildings is directed towards renovation projects and the replacement of heating systems. Many countries also place considerable emphasis on social housing, energy communities, and advisory centres for citizens. This demonstrates that European climate policy is increasingly being designed as a long-term social development policy rather than solely as an emissions reduction instrument. 

For Latvia, this presents both opportunities and challenges. On the one hand, substantial EU funding is available to modernise the housing stock and improve regional mobility. On the other hand, close cooperation between the national government, municipalities, energy companies, and the financial sector will be essential to transform this funding into tangible projects. European experience shows that the most successful Social Climate Plans are those that accurately identify vulnerable groups and invest in solutions with long-term economic benefits.

Source: Frederik Lettow, Marie-Louise Zeller, Brigitte Knopf, Analyse der Klimasozialpläne der EU-Mitgliedstaaten