Social Plan for Climate: New Climate Levy Raises Fuel and Heating Prices

The Croatian Government has launched an e-consultation on the ‘Social Plan for Climate Policy of the Republic of Croatia 2026 – 2032’, which is intended to mitigate the impact of the ETS2 system on households and small entrepreneurs. Namely, ETS2 is a new European greenhouse gas emissions trading system that encompasses the construction and road transport sectors, as well as emissions from fuels in these sectors that were not previously covered by the existing EU ETS.

In short, new price increases are coming. From January 1, 2027, heating and fuel will become more expensive, along with everything that depends on them, including the transport of people and goods, logistics, part of food prices, firewood, and other products. Politicians often refer to this as a ‘just’ and ‘social’ transition, but the key question remains the same: will the new emissions trading system help the most vulnerable or will it push them over the edge first?

More Expensive Heating and Fuel

Unlike the ‘old’ ETS that pertains to power plants and industry, ETS2 is a new system that directly impacts the heating of apartments and houses as well as road transport. In translation, every liter of heating oil, every cubic meter of gas, and every liter of diesel for cars will include an additional item in the price, the cost of CO₂.

The Government’s Social Plan clearly shows what this means for wallets. If the price of CO₂ is 60 euros per ton, the additional annual heating cost for households using fossil fuels is estimated at around 40 euros for the poorest decile of the population and about 200 euros for the richest decile. And this is just for heating, and only for those who depend on heating oil, gas, or other fossil fuels.

In reality, the effect will be broader. ETS2 will also raise the price of fuel for cars, and more expensive transport can increase the price of firewood and other goods. In other words, ETS2 is a new climate levy in every energy bill, and it will be felt most by those who have no choice or alternative.

EU Offers Two Options

Given that ETS2 raises costs for households, the EU has simultaneously established a ‘Social Fund for Climate Policy’, which is projected to allocate nearly 87 billion euros for the period from 2026 to 2032. Of that, Croatia has received about 1.23 billion euros, and with national co-financing, it will have a total of around 1.64 billion euros available for support to vulnerable households and small entrepreneurs.

The EU has also offered states two tools through which these funds can be spent and combined. The first is investment in projects (energy renovation, public transport, electric vehicles, cycling infrastructure…), and the second is direct support to households (climate vouchers as account supplements, one-time compensations).

Croatia: Projects Yes, Money for People No

However, Croatia has simply crossed out the second tool. ‘Component C3’ in the document intended for direct assistance to households is marked as ‘not applicable’, with a clear note that it will not be implemented. In translation, citizens from this Plan will not receive a single euro in direct compensation for more expensive gas, heating oil, or fuel, and all the money goes to projects, buildings, buses, railways, systems, and administration. Otherwise, of the total funds, 37.5 percent can be allocated for direct support, which Croatians apparently will not see. Ultimately, investments in projects are necessary and can reduce bills in the long term, but they have one unpleasant characteristic: they are slow, complicated, and selective. They take years to prepare and implement, and the benefits do not reach everyone equally or at the same speed. In the meantime, the increase in energy prices will come immediately, i.e., on the first day of 2027.

A Large Number of ‘Vulnerable’

According to the Plan itself, Croatia enters ETS2 with a serious deficit. According to the LIHC (low income high cost) methodology, 13.6 percent of the population in Croatia lives in energy poverty, which means more than half a million people, and this encompasses 12.7 percent of households (168 thousand).

The Plan also introduces for the first time at the national level definitions of ‘transport poverty’ and ‘vulnerable transport service users’. This refers to households that are at risk of poverty and spend twice the median share of income on transport, live in isolated areas, and do not have access to available and affordable public transport, as well as individuals with low incomes who cannot physically or financially use existing transport. According to the Plan, there are about 416 thousand vulnerable transport users, and about 190 thousand households are in transport poverty.

Otherwise, Croatia is a country where about 86 percent of the population owns a car, but about 3.2 percent of the population states that they cannot afford a car at all. At the same time, in a large part of the country, public transport is rare or practically non-existent, so in this context, a car is not a luxury but a necessity. When fuel prices start to rise due to ETS2 in 2027, it will hit that necessity, especially in areas where wages are the lowest and alternatives are almost non-existent.

Co-Financing: An Opportunity for Some, a Wall for Others

Another problem that the Plan itself acknowledges is co-financing. Most measures, from home renovations to larger construction projects, require a personal share or creditworthiness. This creates a paradox because it formally targets the poorest and most vulnerable households, but in practice, they are the hardest to reach because they do not have savings, do not have regular incomes for credit, or live in buildings with complex ownership relations. Those who have capital and are ‘clean’ on paper will find it easier to enter a project, draw support, and reduce their bills in the long term. Those who live from month to month will initially only see more expensive energy from the Social Plan.

An additional problem is the structure of the funds. About 57 percent of the total funds go to road transport, about 39 percent to buildings, and only about 2.5 percent to technical assistance and administration. From the perspective of household bills, this means that most of the money goes to infrastructure and systems, rather than directly alleviating the costs that people see on their monthly bills.

At the level of Brussels and the state budget, the Social Plan looks impressive, with 1.64 billion euros for a ‘just’ transition, tens of thousands of tons less CO₂ annually, projects in construction and transport. At the household level, the picture is simple: from January 1, 2027, heating and fuel will be more expensive, and already more than half a million people live in energy poverty. Those who have property, capital, and strong local administration may receive a renovated house or better bus in a few years. Those who do not will pay for the transition immediately, and whether they will see any benefits from it remains an open question.