Distributional Impact of Carbon Pricing in Central and Eastern Europe (EUKI)

Carbon pricing is the cornerstone of EU policy to combat climate change and achieve climate neutrality by 2050. Although it is an effective tool, it also comes with an undesirable distributional effect, where the intended benefits simultaneously mean economic and social disadvantages for some EU citizens. This has led to a rather sceptical attitude towards the EU’s decarbonization process in some regions. This is also the case in Central and Eastern Europe (CEE), a region with carbon-intensive economies and a population heavily impacted by energy poverty. For a unified and progressive agenda in EU countries, decision-makers need to find solutions to mitigate the negative effects of carbon pricing.

To develop solutions, a thorough understanding of the distributional impact of carbon pricing and the interactions between climate policy and energy poverty is essential. To this end, the project team conducted a study on the impact of rising carbon prices on economically vulnerable groups. It focused on four Eastern European EU Member States (Bulgaria, Hungary, Poland and Romania) that are disproportionately dependent on fossil fuels and affected by energy poverty.

The study examined various aspects of distributional effects, such as price developments, how consumers adapt to them and the consequences of carbon pricing for the labor market (especially in carbon-intensive sectors).

Based on the findings, the project team made recommendations on how policy makers can mitigate the negative effects of a carbon tax, for example by redistributing additional tax revenues. In this way, governments can establish social justice and optimize social protection for vulnerable groups. To promote an informed debate on the interaction between climate policy and energy poverty, the project team conducted public consultations on the key findings with relevant stakeholders at national and EU level.