Final report on Carbon Pricing Design for the Energy Community

The Energy Community Secretariat has released the study ‘Carbon Pricing Design for the Energy Community’ prepared by Kantor and E3Modelling consultancies. The aim of the study is to propose a carbon pricing mechanism for the time horizon until 2040, suitable for the decarbonisation of the power and district heating sectors in the Contracting Parties of the Energy Community, while avoiding and minimizing adverse social and economic impacts.

Carbon pricing has proved to play a key role in achieving meaningful greenhouse gas emission reduction in the EU and in ensuring a level playing field, as energy markets become increasingly integrated. The Energy Community needs the carbon pricing mechanism because almost half of all electricity produced in the region still comes from old and inefficient thermal power plants burning solid fossil fuels. With the European Green Deal unfolding, it becomes clear that Europe’s transition to climate neutrality can only be effective if the block’s immediate neighbourhood also takes meaningful climate action.

The five policy scenarios elaborated in the study show that the optimal policy option would be a gradual introduction of carbon pricing coupled with full market integration. The study concludes that under the recommended policy option, carbon pricing would have a very positive overall impact on the economy and employment in the region.