As global leaders gather in Montreal this week for the International Energy Agency’s annual conference on energy efficiency, the instinct will be to talk data centers, systems, megawatts and emissions curves. That conversation matters, but it is incomplete. Europe keeps missing the human dimension of energy efficiency — and the bill for that omission is coming due just as carbon pricing extends to the buildings people live in.

Recent experience shows how quickly climate policy can become politically contentious when households are faced with high perceived costs and limited clarity on support. Where the transition is seen as imposed and unfair, backlash follows.

This should concern policymakers preparing for ETS2, the EU’s extension of carbon pricing to heating and transport fuels from 2027. It also reinforces why the current focus on energy efficiency is the right one. Europe should move ahead with both ETS2 and the Social Climate Fund. But pricing carbon without visibly protecting and supporting households risks triggering similar backlash at EU scale.

Buildings are not assets. They are homes.

Buildings account for roughly 40% of Europe’s energy consumption, but people spend up to 90% of their time inside them. That dual role means decisions about buildings are never just about energy — they are about health, learning outcomes and productivity, and increasingly, about politics.

Millions of Europeans already live in homes with poor indoor air, insufficient daylight and inadequate heating. VELUX Healthy Homes Barometer found that and one in three Europeans is exposed to at least one indoor climate hazard — damp, mould, cold, noise or lack of daylight. These are not abstract risks: poor indoor conditions raise the risk of depression and other harms to mental well-being, and fixing these indoor climate problems in Europe’s homes delivers well-being benefits equivalent to roughly €100 billion a year. They are also becoming increasingly visible in summer: recent heatwaves have highlighted how poorly performing buildings expose households to overheating, making indoor comfort a growing public concern — and reinforcing the case for energy-efficient, well-designed renovation. The same research, citing WHO data, finds that improving housing does more to reduce health inequities over time than investing directly in healthcare.

Europe has been making progress. Eurostat data show that the share of Europeans unable to adequately heat their homes fell from 10.6% in 2023 to 9.2% in 2024, the first real improvement since 2021, driven by falling energy prices and efficiency gains. But the gains were concentrated in the countries that started worst off, like Portugal and Spain, and several analyses now point to them stalling or reversing: the Iran war has driven gas prices up sharply since February, on top of storage levels already well below the five-year average. The direction for 2025-2026 looks set to be the wrong one.

ETS2 is the right policy. It needs the right safeguard.

ETS2 deserves support. Pricing carbon in heating and transport sends the signal Europe needs: emissions have a cost, and improving building performance is not optional.

But the evidence on who pays is uncomfortable. Research published via NBER finds EU carbon pricing has been more regressive than commonly assumed, hitting lower-income households harder than earlier studies suggested.

The political fallout is no longer theoretical. A CEPR study of European regions finds rising carbon prices has been shown to increase support for extremist and populist parties, concentrated on the far right and strongest in carbon-intensive regions. Tellingly, voters punish politicians more harshly for carbon prices than for equivalent oil shocks, because carbon prices are seen as a political choice, oil prices are not. Perceived unfairness, not just the euro amount, drives the backlash – unless Europe pairs the price with the safeguard.

That safeguard is the Social Climate Fund, and it deserves Europe’s full backing too. Done well, it can target investment at the worst-performing buildings, where low-income households are concentrated, cut bills, and turn climate policy into something citizens feel rather than resent. Europe should fund and implement ETS2 and the Fund as one.

Make the money land where it is needed

Targeting renovation at the worst-performing stock is not just social — it is efficient. The European Commission estimates renovation can save households up to €881 a year, with deep renovation cutting energy use in the worst homes by up to 80%. Unlike a carbon price, regressive by default, renovation is progressive by design — but only if funding reaches those who need it most, not those with capital to pre-finance their own upgrades.

That is the test the EU’s revised Energy Performance of Buildings Directive must pass. As member states move into implementation, their choices decide whether Europe gets merely more efficient buildings, or genuinely better ones: embedding daylight, fresh air and thermal comfort as core performance measures, and channelling Social Climate Fund money to the worst-performing buildings first, where the gains are largest.

A triple win, if Europe gets the sequencing right

None of this is a “nice to have.” It is the difference between a transition that holds public support and one that hands the initiative to its loudest opponents.

Buildings are moving from passive energy consumers to active players in the energy system — supporting electrification, providing grid flexibility, cutting demand. That shift matters, and Montreal is right to put it centre stage. But an efficient building that is unhealthy or unaffordable to retrofit will not deliver on climate goals, nor build lasting public support.

Europe should use all its tools with conviction: ETS2 to price carbon, the Social Climate Fund to protect people, the EPBD to channel renovation money where it is needed most. What has been missing is sequencing — pairing the carbon price with credible support before the bills land, not after the backlash starts.

Get that right, and Europe delivers a genuine triple win: for the climate, the economy, and the citizens whose support the project depends on. Get it wrong, and the next political backlash is already on its way.