Europe’s climate transition not only involves transforming the energy system, but also rethinking the fiscal architecture of Member States. The study commissioned by the European Commission examines how decarbonisation will affect revenues, expenditure and the sustainability of public debt up to 2050.

As dependence on fossil fuels declines, governments will lose part of the traditional tax revenues linked to fuels and energy, while public investment needs in infrastructure, energy efficiency and social support continue to increase. However, the report concludes that this process can remain within fiscally sustainable limits thanks to rising revenues from the European carbon market, the Carbon Border Adjustment Mechanism CBAM and the gradual phase-out of fossil-fuel subsidies.

Differences between Member States remain significant, both in terms of economic exposure and climate ambition. The analysis also underlines that the design of fiscal and investment policies will be decisive in balancing competitiveness, social cohesion and climate neutrality over the coming decades.