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ORSE: Romania may invest 6 bln. euro to reduce energy poverty

1 April 2024

Romania will be one of the biggest beneficiaries of the Social Fund for Climate, which will create a significant opportunity to reduce the energy poverty rate at the national level. Thus, Romania will receive 9.25% (6 billion euros) of the financing package worth 65 billion euros of the Social Fund for Climate, available in the period 2026-2032. The financing tool is intended to mitigate the potential negative effects on households from the introduction of the ETS 2 carbon tax mechanism. This new mechanism for charging fossil fuels used for heating homes and in road transport will be applied in the EU from 2027. The funds will have to used for investments to support vulnerable groups, citizens in energy or transport poverty, reports the Center for the Study of Democracy (CSD), the initiator of the Romanian Energy Poverty Observatory (ORSE), in a report on the effects of the application of ETS 2 on countries in the region.

The report “Identification of vulnerability to ETS 2 in the Central and Eastern European region based on the example of Romania and Poland. Recommendations for social climate plans’ was carried out by CSD together with non-governmental organizations in Poland (WiseEuropa) and Germany (adelphi, Berlin).

According to the report, the Member States of Central and Eastern Europe need special attention in the context of the application of ETS 2 and the Social Climate Fund. They have their own patterns of energy and transport vulnerabilities. Lower incomes than the EU average, a large stock of old and energy-inefficient buildings and reliance on polluting fuels for heating are all common features across the region. Moreover, in these countries, a large part of the population still lives in rural areas, in thermally inefficient houses, without the financial resources to insulate them and trapped in the use of inefficient heating fuels. All this leads to high levels of energy poverty.

“In Romania, households that use gas-based devices for home heating and are already energy poor will be the most vulnerable to ETS 2. But other types of households will also be indirectly impacted by the ETS 2 system. Therefore, a the big stake is to develop programs adapted to the energy needs of low- and middle-income households that are vulnerable to any price increases. These households are already in precariousness or at high risk of energy poverty if they do not benefit from long-term interventions. One of the most important tasks for the authorities in the coming period is to identify and profile the households that will be most affected. This 6 billion euro financing from which Romania will benefit will create a major opportunity to reduce the high rate of energy poverty recorded at the national level, if the vulnerable categories of consumers are correctly identified,” said Andreea Vornicu, researcher at the Center for the Study of Democracy and co-author of the study.

In order to access the money available through the Social Climate Fund, the beneficiary states must develop, by mid-2025, clear and comprehensive action plans that identify households vulnerable to rising energy bills, as well as vulnerable transport users.

Investments will target the decarbonisation of heating and cooling systems of buildings or the reduction of energy used by buildings, including the integration of renewable sources; accelerating the adoption of zero-emission mobility, including refueling and recharging infrastructure, shifting to the use of public transport and developing multiple modes of transport, and some measures to provide financial support to low-income households in the poorest energy-performing buildings and to address the social impact of the ETS 2 carbon price on low- and middle-income transport users.

The impact of ETS 2 on Romanian consumers

In Romania, 37% of households were in energy poverty in 2022, having spent more than 10% of their income on energy bills (electricity and heating), according to CSD modeling based on data contained in the Family Budget Survey carried out by the National Institute of Statistics. Therefore, any further increase in natural gas prices, such as that generated by ETS 2, would bring an additional cost that will be reflected in energy bills.

Thus, at a cost of 70 euro/ ton of CO2, the total expenses of a household will increase by up to 5%, according to the estimates contained in the report published today by the CSD. For those on average incomes, the additional expenditure will be largely related to heating.

Households in the top two income deciles (thresholds) are the least affected, as these households mainly use wood for heating, a fuel that is not included in ETS 2. However, these households will be indirectly affected, as any rising gas prices will lead to increased demand and therefore higher prices for alternative fuels, including wood. This effect was recorded in Romania in the winter of 2021/2022, when timber prices rose and government attempts to mitigate the effects remained ineffective (the ceiling price of legal timber led to an increase in prices on the unregulated market).

Middle-income households will mostly be directly affected by ETS 2, because they are the households that do not have much economic leverage and every change in prices directly affects their income. In addition, these households cannot afford large investments and need government support to switch to low-carbon heating options, upgrade buildings and other long-term measures.

As for transport, the biggest impact, around 4% on total expenditure, would be felt by households in the highest income deciles, according to the report published by the CSD. This result is consistent with the fact that high-income households tend to use personal cars for daily commuting more than low- and middle-income households. However, special attention should be paid to the mobility of consumers in the top income deciles, where low impact may mask limited mobility and the need for better public transport infrastructure and services.


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