Distributional Impact of Carbon Pricing in Romania

EUKI project Distributing the Impacts of Carbon Pricing in CEE investigates the dual benefits of carbon taxes and revenue redistribution for emissions reduction and energy poverty alleviation.

The report evaluates the macroeconomic and microeconomic effects of a carbon tax, set to achieve a 40% reduction in emissions by 2032. It examines the tax’s minimal negative impact on GDP growth and employment, finding a -0.12% and -0.02% effect respectively by 2032.

Focusing on households, the report highlights the regressive welfare losses from the carbon tax, ranging from 0.8% for the highest income decile to 1.3% for the lowest. However, it demonstrates that well-designed revenue redistribution, through lump-sum transfers or price subsidies, can turn the policy progressive, resulting in welfare gains for lower-income households.

The report also addresses energy poverty, showing that carbon taxes with redistribution can reduce energy poverty rates compared to the baseline. Recommendations are provided to optimise these redistribution mechanisms to support vulnerable populations while achieving climate goals.