1 minute read / March 29, 2026
The transition to climate neutrality will significantly transform the EU economy but does not pose a threat to the sustainability of public finances, concludes a new study commissioned by the Commission’s Directorate-General for Climate Action (DG CLIMA). The study evaluates the direct impacts of the transition on revenues, expenditures and budget balances, while also taking into account indirect effects.
As a result of the climate and energy transition, government revenues from fossil fuels are set to decline, while carbon pricing revenues are set to increase in the medium-term, until the economy’s decarbonisation sets them on a declining path.
The EU has already started to shift away from fossil fuels and is committed to phasing out fossil fuel subsidies. Revenues from fossil fuel taxation should decline as a share of GDP all the way to 2050, in line with the economy’s electrification and the shift to renewable and low-carbon energy sources. This decline in revenues is set to be partly compensated by the projected phase-out of fossil fuel subsidies by 2035, which are currently still significant in many Member States.
