A Just Pathway to Decarbonization in Germany

The report from EUKI project Distributing the Impacts of Carbon Pricing evaluates the macroeconomic implications, revealing that the carbon tax could reduce Germany’s natural gas imports by 15% by the end of 2023. It finds manageable impacts on economic growth and minimal effects on employment, with a slight 0.4% decrease in value-added for the services sector by 2032.

Microeconomic analysis shows that, without revenue recycling, the tax is mildly regressive, affecting the poorest 10% of households more. The report assesses three redistribution scenarios—price subsidy, lump-sum, and double dividend—each significantly reducing social losses and protecting less affluent households.

In terms of energy poverty, the report highlights that nearly 350,000 German households are at risk annually. The carbon tax would increase energy poverty rates by 42% before redistribution. Among the redistribution strategies, the price subsidy is the most effective, cutting the share of energy-poor households by nearly 20%.