Distributing the Impacts of Carbon Pricing in CEE

Background

Carbon pricing represents the cornerstone of the EU’s policy to combat climate change and reach carbon neutrality by 2050. While a powerful tool, it also entails a distributional effect, meaning that the benefits associated with it come with economic and social disadvantages for some EU citizens. This has led to a rather sceptical approach towards the EU’s decarbonisation process in some regions. This is also the case for Central and Eastern Europe (CEE), a region with carbon-intensive economies and populations significantly affected by energy poverty. To allow for a more uniform and progressive agenda among EU countries, decision makers have to come up with solutions that mitigate the negative impacts of carbon pricing.

Project Team; Photo: © Energy Policy Group

Project

To come up with solutions, a thorough understanding of carbon pricing’ distributional effect of and of the interaction between climate policy and energy poverty is essential. To this end, the project team conducts a study on the effects of increasing carbon costs on economically vulnerable groups. It focuses on four Eastern European EU members (Bulgaria, Hungary, Poland, and Romania) with higher-than-average fossil fuel dependence and energy poverty levels.

The study examines various aspects in which the distributional effect articulates itself, such as price responses, consumer behaviour adjustment, and labour market impacts (especially in carbon-intensive sectors).

Based on the findings, the project team makes policy recommendations on how to mitigate negative effects of carbon taxation, including redistributing additional tax revenues to ensure social justice and optimise social protection for vulnerable groups. To foster an informed debate on the interaction between climate policy and energy poverty, the project team conducts public consultations on key findings with relevant decision-makers at national and EU levels. The project team coordinates its activities with the EUKI project Socially Just Carbon Pricing Policies in CEE.