By Sanjeev Kumar, Head of Policy, European Geothermal Energy Council.

The European Commission will launch another round of reforms to its Emissions Trading System on July 14. An upstream cap on emissions from buildings and transport will be included. This is both welcome and worrying.

It is welcome because fossil heating in buildings, unlike electricity, does not face a uniform carbon price across the EU. This makes fossil heating artificially much cheaper than cleaner and safer renewable solutions. It also hampers efforts to decarbonise Europe by 2050.

Heat is almost half of the total energy consumed in the EU. It is used for heating in buildings and industry. Emissions from fossil heat in buildings, which is used for space heating and hot water mainly, are the main target of this new carbon market. The only solution to address the climate problem is to replace fossil heating, which makes up over two-thirds of the entire supply, with renewable energy solutions such as geothermal district heating and ground source heat pumps, solar thermal and air-source heat pumps. Energy savings help reduce the overall volumes of renewable energy needed to decarbonise buildings.

An effective carbon price, which levelises the gap between fossil and renewable heat, should empower household and office owners to switch to clean heating. This would be a boost for the EU economy and consumers. ADEME, the French environment agency, found that geothermal district heating produced heating at a levelised cost as low was €15 MWth in 2019, a massive saving on fossil gas, which cost €51 per MWth.

Whilst a robust carbon price will create an incentive for change, more is required to accelerate large-scale deployment of renewable heating solutions. This is in part because fossil heating continues to be a significant beneficiary of direct and indirect fossil fuel subsidies.

For example, infrastructure costs to transport fossil gas continue to be heavily subsidised by the EU’s Connecting Europe Facility whilst governments subsidise excessive fossil heating consumption costs during peak demand. Fossil heating prices are regulated in many countries to keep consumers hooked on this pollution. Subsidies to convert to ‘more efficient’ but polluting fossil boilers is a serious distortion.

On top of this, split incentives between landlords and tenants, the ‘hassle factor’ concerning building refurbishments, timing and the lack of awareness on renewable heating are additional obstacles to switch to renewable heating. Carbon pricing alone won’t solve these problems. The new fund that is to be created in this scheme might, if it is designed right.

Cities and local authorities all over Europe have prioritised renewable heating. It has been a constant theme in the Sustainable Energy and Climate Action plans operated under the Covenant of Mayors. Some cities like Helsinki, Munich, Paris, Vienna, Dublin, Alexandropoulos, Malmo and Ljubljana, for example, are in various stages of developing city-wide heat decarbonisation plans. A robust carbon price will help these tenders deploy renewable heating.

Local authorities need time, finance and capacity for renewable heat planning to solve the problem for large swathes of the pollution. Dedicated funding from the new ETS is required for this.

Energy poverty, which is actually heat poverty, must also be prioritised. ETS funding must be targeted towards to replacing fossil heating through coordinated EU and local action within the decade. This is the best way to avert political catastrophes such as the gas heating price crisis which toppled the Bulgarian government in 2008 and domestic problems every winter when heating bills skyrocket across Europe.

The Swiss experience provides a useful template for awareness raising. The Chaffauge Renouvable marketing campaign links building owners with independent advisors to assess the energy performance of buildings and complete applications to finance renewable heating appliances. A European awareness campaign is needed to provide economies of scale, broad coverage and help sweeten the impact of the carbon market for buildings.

Above all, every cent raised from the scheme must be channelled directly back into direct investment. This also includes using the new fund to operate as the member state own contribution to unlock EU funding. The objective of the carbon price is to replace fossils from buildings not line the pockets of governments. That would be most worrisome.