Details
- Identification
- Discussion Paper 229
- Publication date
- 30 October 2025
- Authors
- Jan Nill | Francesca Crucitti | Magdalena Spooner | János Varga | Directorate-General for Economic and Financial Affairs
Description
The paper provides an overview of the distributional dimension of the EU’s Fit for 55 climate and energy policy package, presents new insights from ECFIN economic modelling on the economic impacts of addressing distributional concerns and derives lessons for Member State redistributive policies.
Highlights
- There is a risk of a moderately regressive distributional impact of the EU’s Fit for 55 package of climate and energy policies.
- ETS carbon pricing provides resources to mitigate this impact.
- The package fosters structural measures for negatively impacted population groups that address the root causes of their relative higher share of energy costs of consumption.
- The design of redistributive measures is left to the Member States. An example is the Social Climate Fund.
- New stylised ECFIN E-QUEST modelling scenarios of different ETS revenue uses show that redistributive measures can imply a macroeconomic trade-off in terms of equity and efficiency.
- In case income-related financial measures are used to complement structural measures, a targeted reduction of labour taxation instead of lump sum payments could mitigate this trade-off.
- Additional modelling of household heating with income inequality and borrowing constraints highlights that only structural measures boost adoption of cleaner more efficient technologies.
- From an economic and fiscal point of view and drawing also on energy crisis lessons, redistributive policy measures should be well targeted and preferably structural.
Information and identifiers
Discussion Paper 229. October 2025. Brussels. PDF 52pp. Tab. Graph. Bibliogr. Free.
KC-01-25-068-EN-N (online)
ISBN 978-92-68-31840-9 (online)
ISSN 2443-8030 (online)
doi:10.2765/6419389 (online)
JEL classification: F13, F41, F62.
Disclaimer
European Economy Discussion Papers are written by the staff of the European Commission’s Directorate-General for Economic and Financial Affairs, or by experts working in association with them, to inform discussion on economic policy and to stimulate debate. The views expressed in this document are solely those of the author(s) and do not necessarily represent the official views of the European Commission.
