Energy Ladder, Decarbonisation and Energy Poverty: The European Union Inside

Abstract

In the forthcoming decades, the energy sector will confront significant transitions related to climate change, supply stability, and energy poverty. The initial two aspects have undergone thorough scientific analysis, whilst the third has received comparatively less analysis despite its significant impact on the lives of millions. Using a systematic literature review, laws and regulations and document analysis, and based on the assumption of an energy ladder, this study provides an overview of energy poverty and its implications. The research focuses on energy poverty in developed countries and answers whether the European Union’s implemented and planned actions to reduce greenhouse gas emissions cause energy poverty. Based on the Polish case, the study shows that the EU’s scheduled actions aimed to stabilise climate change, although right in intention, require modification because they do not fully consider the significant economic and energy development diversity of the European Union Member States and may increase energy poverty affecting the European inhabitants. The findings show that due to the implementation of the EU Emission Trading System 2 in 2027, transport costs may increase by almost one-third, which will raise the prices of goods and services and affect energy poverty. This study develops the stream of research on energy poverty, modifies the concept of the energy ladder and shows threats resulting from the ETS2 implementation. The paper proposes the avenues of future research.

1. Introduction

The energy sector will confront energy security, climate change, and poverty in the forthcoming decades [1]. The initial two problems have undergone thorough analysis, e.g., [2,3,4,5], whereas the third has received comparatively less focus in research, e.g., [6,7,8,9,10]. The extant literature presents several perspectives on energy poverty, e.g., [6,7,8,9,10,11]; nonetheless, this study is conducted to facilitate the identification of the most critical parts of the issue in developed countries. We examine the circumstances of energy poverty and its future outlook related to the European Union’s policy to radically reduce the emission of greenhouse gases by the mid-21st century. The sustainable approach implemented by the European Union (EU) concentrates mainly on environmental issues. However, does this approach sufficiently consider social issues and, therefore, the problem of energy poverty?

This article does not aim to explore poverty’s fundamental causes and consequences, including energy poverty, or analyse the diverse technological choices for energy access. Instead, it concentrates on how initiatives to implement a greenhouse gas reduction plan in the European Union (EU) may increase energy poverty among citizens. We focus on developed countries. Therefore, the specific characteristics of energy poverty in developing nations are beyond this study’s purview.

This paper enhances the current literature in the following respect. We examine energy poverty through the lens of the modified energy ladder model, which includes the imperatives of environmental protection. We focus on the EU Emissions Trading System (ETS) and its modification (ETS2), which encompasses carbon dioxide emissions from fuel combustion in buildings, road transport, and other sectors, primarily small industries not included in the existing ETS. We examine the implications of ETS2 implementation for energy consumers and formulate the model of an inverted energy ladder in the country with the energy sector mainly based on fossil fuels.

The document is structured as follows: Section 2 delineates the idea of energy poverty and enumerates the several methodologies employed for measuring it. Section 3 presents the research methodology. Section 4 examines the present circumstances and trends concerning energy poverty. Section 5 presents conclusions and identified avenues for future studies.

2. Literature Review

2.1. Energy Ladder

Cross-country analyses indicate a positive association between economic growth and the usage of modern fuels, implying that as a nation advances in industrialisation, its dependence on petroleum and electricity, including nuclear power, escalates while the significance of biomass diminishes. Empirical research has also substantiated the correlation between energy consumers’ income and fuel selection at a micro level [12,13,14]. The energy ladder model posits that households emulate the behaviour of a utility-maximising neoclassical consumer, suggesting that they would transition to more advanced energy carriers as their income rises [15]. Fuel switching is fundamental in energy transmission, referring to replacing one fuel with another. Transitioning to a new fuel concurrently signifies a departure from the previously utilised fuel [16]. The fuels on the energy ladder are arranged according to household preferences, including physical attributes such as cleanliness, usability, cooking speed, and efficiency [17].

The ascent of the energy ladder is characterised by a linear progression comprising three separate phases (Figure 1). As consumers ascend the socio-economic ladder, they discard inefficient and more polluting technologies, transitioning from universal dependence on biomass fuels to transitional fuels like kerosene and coal in the subsequent phase. In the final phase, consumers transition to fuels such as LPG and electricity [18]. Higher-ranked fuels typically exhibit more significant efficiency, necessitating reduced labour input and generating diminished pollution per fuel unit [18]. The energy ladder posits that more costly technologies are regarded as indicators of elevated status locally and internationally [19,20,21]. It depicts wood as the fuel impoverished societies utilise and shows a significant link between consumers’ income and fuel selection. Nevertheless, evidence indicates that the correlations between fuel selection and income level are infrequently as robust as the energy ladder model assumes [21].

The energy ladder remains somewhat of an assumption. The linear pattern shows energy transition at higher levels of energy consumer income. However, it is essential to consider the subsistence strategy by which households cope with irregular income flows, protect themselves from volatile markets, and stick to their cultural practices rather than income alone as the primary driver of energy fuel switching. Existing empirical studies have identified several factors that influence fuel switching. These include internal household factors such as cultural background and household characteristics and external household factors such as fuel access and price levels [21]. Studies show that fuel-switching behaviour depends on more than income, as the energy ladder suggests [21]. To date, relatively little attention has been paid to the policy decision-making process and energy poverty. Meanwhile, existing international and government policies can play an important role in household fuel choice decisions [21]. In addition, the energy ladder model illustrates the situation in less affluent and developing countries and requires a modified construction for developed countries classified as wealthy in the case of most EU Member States. Considering the above, it is necessary to examine how the European Union’s greenhouse gas emission reduction policy, obliging Member States to phase out fossil fuels in energy production, affects the situation of energy consumers and energy poverty. The remainder of this article presents a modified authored energy ladder (Figure 2) that considers the impact of fuel type on greenhouse gas emissions.

2.2. Energy Poverty

Sustainable development involves solutions that limit the degradation of the natural environment, understood as the depletion of the world’s natural resources and simultaneously environmental pollution [11], caused by human activities rather than natural phenomena [22]. A key component for environmentally friendly economic development is decreasing the use of fossil fuels and reducing carbon outputs by promoting renewable energy [23]. The problem is that countries are at different levels of economic development, and energy transformation is expensive and may lead to energy poverty.

The concept of energy poverty was initially introduced in the United Kingdom throughout the 1980s [24]. Since then, numerous definitions and interpretations of energy poverty exist, all denoting energy use as inadequate to fulfil essential demands [25]. Boardman [25] identified three primary elements contributing to energy poverty: inadequate income, inefficient housing, and elevated energy costs. Hills [26] introduced the low-income/high-cost (LIHC) indicator to evaluate energy poverty, defining it as a household where (i) income falls below the poverty threshold and (ii) energy expenses above the national average (median) fuel cost, hence categorising it as energy poor.

These indicators are criticised for lacking empirical explanation [27] and concentrating on a narrow facet of the energy poverty problem [28,29,30]. Energy poverty perceived through the prism of individual energy consumers’ income should be linked with social consequences (e.g., living in unheated apartments or houses due to insufficient financial resources may result in health problems) [10,31,32,33,34,35]. Unlike earlier definitions, which concentrated on energy spending related to “fuels” or “energy”, the latest definitions prioritise delivering energy “services”, e.g., [36,37]. Bouzarovski [38] characterises energy poverty as the inability of a household to obtain socially and materially required levels of energy services within the home. Reddy [39] understands energy poverty as the lack of sufficient options for accessing adequate, affordable, reliable, high-quality, safe, and environmentally friendly energy services to facilitate economic and human development. This definition was chosen for further consideration because it includes several critical components and nuances [6]. Primarily, it underlines the lack of options. Sen [40] posits that development is mainly about avoiding exclusion from the possibilities that facilitate attaining well-being in its most comprehensive form rather than merely obtaining a specific income level (or some piece of energy per capita). Energy exclusion may, therefore, result from the fact that electricity supplies are expensive due to specific conditions. For example, due to legal restrictions, onshore wind energy development is hindered, and consumers are forced to purchase energy from combined heat and power plants that generate electricity and hot water from burning fossil fuels, burdened in the European Union with high environmental fees. Secondly, the definition emphasises fulfilling the demand for “energy services”. While it may appear evident, it is essential to remember that the objective is not energy consumption but delivering energy services from diverse sources. The concept also delineates specific advantageous attributes of the technology employed to access energy services. These technologies must be “adequate”, meaning they should align with each region’s geographical characteristics, knowledge base, financial possibilities, and culture. Development initiatives are likely to fail if they attempt to reproduce the same technology across different areas without considering the unique characteristics of each region [6]. Although Birol [6], analysing the definition of Reddy [39], explains what the word “adequate” means through the prism of technology, this issue should be supplemented. The word “adequate” should be understood primarily in such a way that technology must consider the environment’s requirements (geographical characteristics). For example, it is challenging to build onshore wind farms on unstable ground or in places where, as previous research shows, there is no strong wind. Using this example further, energy transformation cannot occur at the expense of worsening the financial situation of energy users produced from wind farms. It cannot take place without taking into account cultural conditions. For example, fear of installing wind farms fuelled by information that they generate waves that increase cancer incidence must be dispelled based on the presentation of reliable scientific research. Technologies must also be “affordable”, meaning they should be as inexpensive as possible relative to available alternatives. The “energy ladder” concept states that higher-quality, more versatile fuels supplant lower-quality fuels as affluence rises. A significant caveat in energy ladder theory is that low-quality fuels are not invariably the least expensive; frequently, they are only the sole alternative available [6].

Ultimately, technologies must be “reliable”, meaning they should not experience frequent service interruptions (since power outages lasting several hours daily are prevalent in many nations), and “safe”, indicating they should not pose health risks. The criteria also state that technology must be “environmentally benign”, meaning it should not jeopardise future generations. Technological solutions aimed at alleviating energy poverty must include their effects on climate change and the environment to ensure sustainable development in the future. Furthermore, as stated in the definition, the objective of energy utilisation is “to facilitate economic and human development”; thus, the mere existence of energy resources and economic activities, specifically extraction, does not ensure overall development or specifically energy development [6].

From a legal point of view, there are two definitions to consider. The United Nations Development Programme (UNDP) states that clean, reliable, and affordable energy services are indispensable for global prosperity and achieving the Millennium Development Goals (MDGs). Yet 1.4 billion people have no access to electricity, and 3 billion people continue to rely on solid fuels for cooking and heating, which influences their health. Therefore, energy poverty is characterised as the absence of access to clean, commercial energy, efficient appliances, and a significant reliance on conventional energy sources, including fossil fuels for cooking [41]. The Directive on Common Rules for the Internal Electricity Market (2009/72/EC) introduced the concept of energy poverty in EU law [42]. According to the European Union, energy poverty arises when a family is compelled to diminish its energy usage to a level that adversely affects its occupants’ health and well-being. It is primarily motivated by three fundamental factors: (1) a high proportion of household expenditure is spent on energy; (2) low income of energy consumers; and (3) low energy performance of buildings and appliances [42]. The European approach posits that each country may formulate distinct definitions to align with national characteristics and standards while concurrently addressing shared issues [36].

Both single and composite indicators assess energy poverty. A singular indicator measures whether the proportion of household energy expenditure to income is beyond a predetermined threshold [43]. These indicators define energy-poverty households as those spending above 10% or the median share of their income on energy services. This indicator depends on household income and energy prices [37]. However, some authors, e.g., [44] contend that the 10% metric fails to consider households compelled to diminish it due to financial constraints. Moreover, the computation process of the indicator neglects the effects of increasing energy tariffs and advancements in residential energy efficiency [45]. Furthermore, the measuring above approaches lack a fundamental theoretical basis and require empirical data to validate their efficacy [37,43].

Composite indicators have been suggested for measuring energy poverty in recent years. The multidimensional energy poverty index (MEPI), initially established by Nussbaumer et al. [46], highlights the multifaceted nature of energy poverty [47]. Price et al. [48] performed a survey to enquire about households’ capacity to maintain a suitable indoor temperature, prompt payment of energy bills, and other enquiries related to living conditions for assessment purposes. These metrics seek to encapsulate subjective viewpoints and comprehensively understand energy poverty. However, they face criticism for their exclusionary limitations, as some households may not recognise their own experience of energy poverty despite their circumstances [37]. Hasheminasab et al. [49] employed health and social, locational, economic, and political criteria to assess energy poverty in European Union countries. Hosan et al. [50] used the MEPI, incorporating factors such as indoor smoking, cooking, entertainment/education, household appliances, and communication to evaluate the energy poverty condition.

Energy poverty can also be assessed using three distinct yet complementary methodologies [51]. These methodologies emphasise energy access based on technological, physical, or economic criteria. Technological threshold: this perspective posits that energy poverty primarily constitutes an issue of access to “modern” energy services. This word refers to electricity and energy sources, excluding biomass for cooking and residential heating. Conventional energy sources restrict or obstruct access to numerous fundamental energy services. From this perspective, energy poverty is quantified by enumerating the people lacking access to electricity. Physical threshold: This method assesses the minimum energy expenditure required for fundamental needs. Individuals falling below that threshold are deemed to be experiencing energy poverty. The issue resides in defining a “basic necessity” and determining whether energy utilised for manufacturing is encompassed within that definition. Economic threshold: This method aims to determine the optimal percentage of income that is justifiable for allocation towards energy expenditures [51]. This methodology resembles what the World Bank employs to assess absolute poverty levels. It is also the predominant system for assessing energy poverty in industrialised countries, where the issue mainly pertains to purchasing power, energy costs, and the challenge of sustaining sufficient indoor temperatures, particularly during winter (“fuel poverty”) [51].

Based on the literature review, one may agree with previous arguments [52] that assessing energy poverty is complex due to disparities across various locations and temporal contexts, its multifaceted nature, and its cultural sensitivity. The relativity of the criteria used complicates comparisons between countries with varying economic conditions.

Numerous studies have examined emissions trading systems—the EU Emissions Trading System (EU ETS) launched in 2005, which requires polluters to pay for their greenhouse gas (GHG) emissions; launched in 2005 (this system covers emissions from the electricity and heat generation, industrial manufacturing, and aviation sectors—which account for roughly 40 per cent of total GHG emissions in the EU; it operates in all EU countries plus Iceland, Liechtenstein, and Norway, and is linked to the Swiss ETS) [53]. These studies state that although decarbonisation tools such as ETS may impact the socio-economic landscape in the countries where they are introduced, it is still too early to formulate clear-cut conclusions. For example, Chevallier et al. [54] elucidate the relationship between the carbon futures market and macroeconomic indicators, including stock, securities, and commodities markets, by multivariate linear regression analysis. They asserted that the carbon futures market had a tenuous correlation with the macro-economy. Likewise, Anger and Oberndorfer [55] conducted an empirical investigation on the effects of the EU ETS on corporate performance and job conditions in Germany. They found that the surplus allocation of CO₂ emission allowances resulted in the EU ETS having a negligible impact on company performance and employment. Zhang and Wei [56] assert that owing to the brief history of the EU ETS, their understanding of and investigation of the carbon trading market have remained rudimentary, with existing research findings encompassing numerous uncertainties. Literature shows that some of the revenue generated from decarbonisation tools is assumed to be reinvested in other activities to reduce emissions. However, there are gaps in understanding how pricing instruments interact with other climate policy tools [56].

In the case of ETS 2, which will enter into force in 2027 in the EU Member States, the scenario paths indicate an increase in the financial burden on society, particularly for its less affluent part. Cammeo et al. [57] examine the influence of European climate policy, particularly the Emission Trading System (ETS), on three countries: France, Italy, and Hungary. Berghmans [58] indicates that implementing the EU ETS 2 is anticipated to exert distributional effects on French households. The research reveals minimal effect on household disposable income, with an estimated adverse impact of less than EUR 0.35 annually without redistribution measures. The distributional consequences are more significant across various income deciles and locations. The most substantial adverse effects are evident among middle-income households (deciles 4 to 8), which may encounter a 1 per cent decrease in disposable income, corresponding to a financial loss ranging from EUR 323 to EUR 510 annually. The redistribution of auction earnings considerably alleviates these impacts. For the lowest-income households, comprising 30 per cent, the redistribution can yield a favourable effect. However, the EU program designed to mitigate potential energy poverty is inadequate to completely counterbalance income reductions, requiring supplementary allocations from national auction revenues. Moreover, the geography study indicates that households in densely populated regions experience more significant adverse impacts. Consequently, tailored redistribution policies are crucial for mitigating the adverse effects on at-risk households [57,58].

Costantini et al. [59] examine the execution of EU ETS 2 within the framework of the FF55 package in Italy. The distributional impact in Italy was evaluated by utilising a dynamic Computable General Equilibrium (CGE) model and an estimation of consumer demand systems. The study assessed three scenarios: eliminating fossil fuel subsidies, implementing a carbon price, and using a hybrid approach, which included both measures. Findings revealed a national yearly welfare loss beyond EUR 10 billion across all scenarios, equating to an average loss of EUR 166 per capita [57,59].

The continuation of carbon pricing inside the EU ETS 2 has more pronounced distributional effects in Hungary [57,60]. A carbon tax in Hungary is anticipated to diminish natural gas imports by as much as 35 per cent by 2032, thus reducing reliance on fossil fuel imports and bolstering energy and climate security. Conversely, decreases in household welfare demonstrate regressive characteristics, disproportionately impacting lower-income households. By 2032, the lowest 10 per cent of families will have welfare losses 1.6 times greater than the highest 10 per cent. The European Commission evaluated the effect of EU ETS2 on heating oil and natural gas consumer prices across each European country, assuming an average carbon price of 48 EUR/tonne CO₂, which is lower than the current value. Implementing carbon pricing would substantially impact consumer costs for heating oil and natural gas in France, Italy, and Hungary. In France, heating oil prices may increase by 17 per cent and natural gas by 12 per cent. Italy may experience an 11 per cent rise in heating oil prices and a 12 per cent increase in natural gas prices. In Hungary, heating oil prices may increase by 12 per cent, while natural gas could rise by 31 per cent. [57,60].

Cammeo et al. [57] assert that scenario paths centred on energy and sustainability transition processes underscore the imperative for significant escalations in carbon (shadow) pricing (exceeding EUR 500 per tonne of CO₂) to attain emission reductions. However, this analysis focuses too much on environmental protection goals without pointing out the long-term consequences for EU countries resulting from the introduction of very high emission fees. Switching the economy to zero emissions requires not only significant financial outlays in business but also huge funds for protective measures for less affluent parts of societies, thermal insulation of buildings, and this in a situation where the rest of the world does not intend to introduce any fees for greenhouse gas emissions, and any EU emission taxes will be treated as a restriction on trade and will be met with a counter-reaction and an increase in customs duties, as announced by the new administration in the USA. Furthermore, the Cammeo study [57] pertains to warmer countries not part of northern or north-central Europe, where Poland is affiliated.

In studies concerning Poland, attention is drawn to the specificity of this country. The residential sector in Poland is heavily dependent on coal. Notwithstanding advancements in the residential energy transition, one-third of households continue to utilise solid fuels, particularly coal. Consequently, decarbonisation will present a significant challenge for Poles [61]. Poles continue to exhibit enthusiasm regarding European integration compared to other nations, while concurrently, they hesitate to implement new environmental taxes [61]. New carbon levies lacking social safety tools modifications can exacerbate societal polarisation. Radical politicians use societal apprehensions around escalating energy prices, leveraging opposition to climate policies to garner political support [60]. Decarbonisation may influence political sympathies and compel politicians advocating for workers in energy-intensive sectors to oppose climate legislation [62]. Therefore, climate policies must be implemented transparently, and proposed solutions must be comprehensible, efficacious, and progressive. They should also safeguard social groups confronting the most difficult circumstances against extreme energy price increases [63].

Some authors state that the efficacy of diverse devices to alleviate energy poverty, including social benefits [64], investment assistance schemes [65], and temporary subsidies like the coal allowance, is constrained [60]. Policymakers prioritised ease of implementation over efficiency, such as granting everyone eligibility for the coal benefit irrespective of income levels [60]. However, it is too early to draw such clear conclusions. Formulating reliable opinions regarding the effectiveness of energy poverty prevention policies requires long-term analysis and examination of various social policies that result in the redistribution of income to the poorest and the rest of society, and not just focusing on a narrow group of social policy tools, including carbon subsidies.

Literature shows that a carbon tax—ETS2 implemented by 2032—would adversely affect employment. The effect would result in a reduction of around 1 per cent relative to the no-tax scenario. The most significant substantial decline in employment is anticipated within the industrial sector. The long-term impact of the carbon tax on employment is expected to intensify [60,65]. Imposing taxes on emissions will pose a considerable macroeconomic problem within regional policy and political economics. Decarbonisation may diminish the significance of the Silesia Region as a hub for coal and energy sectors [66]. A significant portion of the declared investments in energy, including offshore wind and a nuclear power plant, is intended for the country’s northern region [60].

The potential for identifying renewable energy sources, such as wind and solar electricity, in conventional industrial districts is less robust than in other areas of the country [60]. In Poland, the carbon tax—ETS2 will be regressive, indicating that lower-income households will incur a disproportionately more significant burden of the expenditures associated with the new measures than higher-income households. Simulation suggests that, by 2032, families in Poland will, on average, experience a 2 per cent decrease in income relative to a scenario devoid of the carbon tax. Households in the highest income brackets (the final three deciles of the income distribution) will incur more minor income losses than the average families in Poland. Implementing a carbon price in Poland will have higher regressive impacts than other EU nations [60,67].

In light of the literature review, there is a need for further exploration of the research area—the impact of the EU decarbonisation policy using the ETS2 tool on energy poverty in Poland, an example of an EU Member State and developed country.

3. Materials and Methods

The research gap determined through a literature review affects this study’s research framework and indicates the interaction between energy poverty and the EU plan to reduce greenhouse gas emissions (energy and gas emissions ladder). This work used the Web of Science (WoS) database for bibliometric analysis owing to its extensive and consistent document records [14]. The data retrieval occurred in December 2024 and January 2025, aiming to capture the maximum quantity of research related to energy poverty. The inquiry was confined to scholarly articles published in English-language journals. Documents were deemed eligible if they had the term “energy poverty” in the title, keywords, or abstract fields. The filtered search results were the analytical input to examine the contents and conclusions about energy poverty through literature synthesis.

A systematic literature review showed that from current studies, little is known about whether pro-ecological actions initiated by the EU to reduce greenhouse gas emissions through ETC2 may affect energy poverty in developed countries. The following research problem was formulated: (1) do the EU’s planned actions to reduce greenhouse gas emissions affect the level of energy poverty in EU Member States? The authors adopted the following central hypothesis: “ETS2 implementation in a country with an energy sector mainly based on fossil fuels may increase energy poverty”.

It is difficult to predict the situation that will occur in 2027 and the years after the introduction of ETS2 in Poland because it depends on the geopolitical situation, which is unpredictable (as shown by the war in Europe between Russia and Ukraine). Our analysis assumes that the geopolitical situation in Europe will not change. Therefore, Poland will have to rapidly increase financial resources for the purchase of weapons and increase the army’s defence capabilities. We calculate how much transport costs in Poland will increase with the introduction of ETS2. Transport costs cause an increase in the prices of goods and services. We also determine what expenses Poland must incur concerning the energy transformation and the implementation of ETS2 to annual budget expenditures. Against this background, we determine whether such a situation, which is related to the cumulative increase in prices and, at the same time, budget expenditures, may affect the increase in the level of energy poverty.

To eliminate the research gap and solve research problem, and verify hypothesis, EU documents related to the planned reduction of greenhouse gases and actions to reduce energy poverty were analysed, e.g.,: (1) the EU Energy Poverty Observatory (EPOV) initiative and the European Pillar of Social Rights; (2) the Clean Energy for All Europeans package; (3) the EU Recommendation on energy poverty (EU/2020/1563); (4) the “Fit for 55” package; (5) the EU document entitled, “Tackling rising energy prices: a toolbox for action and support” (EU/2021/660); (6) Decision EU/2022/589 establishing the Commission Energy Poverty and Vulnerable Consumers Coordination Group; (7) Regulation EU/2023/955; (8) Energy Efficiency Directive (EU/2023/1791); (9) Recommendation on energy poverty (C/2023/4080), together with a guidance document (SWD(2023) 647); (10) Energy Performance of Buildings Directive (EU/2024/1275); (11) Directive (EU) 2024/1711 and Regulation (EU) 2024/1747); (12) ETS Directive; (13) Directive 2023/959 amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union and Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading system.

Poland was selected for the study for the following reasons: (1) it is a developed country and an EU Member State; (2) it is the 22nd largest economy in the world; (3) energy production is mainly based on coal combustion; (4) the country is among the largest emitters of greenhouse gases within the EU [68,69]; (5) in 2023, Denmark and Ireland had the highest share of wind in their electricity mix, with 56 per cent and 36 per cent, respectively. Wind met at least 20 per cent of electricity demand in another eight countries: Germany (31 per cent), the Netherlands (27 per cent), Spain (27 per cent), Sweden (26 per cent), Portugal (26 per cent), Lithuania (21 per cent) and Greece (20 per cent). Poland and the Czech Republic had 13 per cent and 1 per cent respectively [70]. However, by February 2025, six nuclear plants had been operating in the Czech Republic, giving 3.934 MWe. Poland has no nuclear plants [71]. In 2022, the share of solid fossil fuels in gross available energy was highest in Poland (40.2 per cent) among other EU countries [72]. In 2023, the share of electricity from fossil fuels (coal, oil, and gas) was in Poland, Germany, and the Czech Republic with 87.85 per cent, 75.08 per cent and 74.11 per cent, respectively [73,74]. Although it would seem that the situation in Poland does not differ significantly from neighbouring countries, the reality is different. The introduction of the 10H Act in Poland in 2016 hindered wind energy development because it imposed restrictive, impossible requirements on investors for the location of new wind farms near human settlements and nature conservation areas. Only the currently planned amendment to this Act will unblock investments in renewable energy [75]. By the time this article was prepared, the amendment to this Act had not entered into force.

4. Results and Discussion

4.1. The EU’s Initiatives to Reduce Greenhouse Gas Emissions

The Energy Union Strategy (COM/2015/080), released on 25 February 2015, seeks to establish a fully integrated internal energy market, diminish reliance on energy imports, and decarbonise the European Union’s economy [75]. The Regulation on the Governance of the Energy Union and Climate Action (EU) 2018/1999 became effective on 24 December 2018 as a component of the Clean Energy for All Europeans initiative [76]. In 2019, the EU reformed its energy policy framework to facilitate the transition from fossil fuels to cleaner energy, specifically to fulfil the EU’s goals under the Paris Agreement for lowering greenhouse gas emissions. The accord on the new energy framework, termed the Clean Energy for All Europeans package, intends to execute the energy union strategy released in 2015. This package consists of eight laws: (1) Energy Performance of Buildings Directive 2018/844; (2) Renewable Energy Directive (EU) 2018/2001; (3) Energy Efficiency Directive (EU) 2018/2002; (4) Governance of the Energy Union and Climate Action (EU) Regulation 2018/1999; (5) Risk-preparedness in the electricity sector—Regulation (EU) 2019/941; (6) European Union Agency for the Cooperation of Energy Regulators—Regulation (EU) 2019/942; (7) Internal market for electricity—Regulation (EU) 2019/943; (8) Common rules for the internal electricity market—Directive (EU) 2019/944). The EU countries have 1–2 years to convert the new directives into national law. The new rules intend to achieve the EU’s long-term strategy of achieving carbon neutrality (net-zero emissions) by 2050 [76].

The European Union’s objectives regarding the reduction of greenhouse gases and achieving zero emissions have been realised in the EU Emissions Trading System (ETS), the legal framework of which is defined in the following legal acts: (1) Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a system for greenhouse gas emission allowance trading within the Union and amending Council Directive 96/61/EC; (2) Directive 2023/959 amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union and Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading system; (3) Directive (EU) 2018/410 amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814; (4) Directive 2009/29/EC amending Directive 2003/87/EC to improve and extend the greenhouse gas emission allowance trading scheme; (5) Directive 2008/101/EC amending Directive 2003/87/EC to include aviation activities in the scheme for greenhouse gas emission allowance trading; (6) Directive 2004/101/EC amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading; (7) Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading and amending Council Directive 96/61/EC [77].

The ETS operates on a “cap and trade” framework. The cap denotes the maximum allowable total greenhouse gas emissions for installations and operators included within the system’s scope. Following the EU’s climate objectives, this cap is diminished yearly, guaranteeing a gradual reduction in overall EU emissions. As of 2023, the ETS has contributed to a decrease in emissions from European power and industrial facilities by almost 47 per cent relative to 2005 levels. The ETS cap is quantified in emission permits, with each allowance permitting the emission of one tonne of carbon dioxide equivalent. Allowances are auctioned and can be swapped. As the cap diminishes, the supply of allowances to the EU carbon market also declines. This indicates that demand and prices are increasing in countries where energy generation relies on hard coal, e.g., Poland. Companies are required to monitor and report their emissions annually. Failure to meet these rules results in substantial fines. The permissions are primarily offered through auctions. Companies may swap allowances among themselves as required. If an installation or operator lowers emissions, the corporation may sell surplus allowances or retain them for future use. All these transactions are documented in the Union Registry. The EU carbon market establishes the cost of allowances and is governed by oversight regulations. The diminishing ETS cap signals to corporations the enduring shortage of allowances while guaranteeing their market value. The carbon price incentivises enterprises to reduce emissions. This price also dictates the revenue produced from the selling of allowances. Since 2013, the ETS has generated around EUR 175 billion. The revenue from the ETS predominantly contributes to national budgets, and Member States must allocate it towards investments in renewable energy, enhancements in energy efficiency, and low-carbon technology that facilitate emission reductions and mitigate firms’ carbon expenses. Some of the ETS revenue also funds low-carbon innovation and the EU’s energy transition through the Innovation Fund and the Modernisation Fund [77].

The 2023 modifications to the ETS Directive instituted a new emissions trading mechanism, ETS2, separate from the existing ETS. This new approach will address carbon dioxide emissions from fuel combustion in buildings, road transport, and other sectors, particularly small enterprises excluded from the current ETS. The ETS2 aims to support the EU plan to achieve the 2050 climate neutrality target. The EU assumes that the carbon price set by the ETS2 will generate a financial incentive for investments in building renovations and low-emission mobility. The ETS2 will attain complete operational capability in 2027. ETS2 will operate as a “cap and trade” system akin to the existing ETS, except it includes the fuel suppliers (not the end consumers such as households or vehicle operators). They will be required to monitor and report their emissions. These entities will be regulated by the ETS2, requiring the submission of sufficient permits to mitigate their emissions. Regulated entities will obtain these permissions via auctions. The ETS2 cap intends to decrease emissions by 42 per cent by 2030 compared to 2005. All emission allowances inside ETS2 will be auctioned, with a fraction of the revenue targeted to support vulnerable households and micro-enterprises through a specific Social Climate Fund (SCF). Entities governed by the ETS2 must secure a greenhouse gas emissions permit and an approved monitoring plan for evaluating and reporting their annual emissions [78,79].

The legal solutions adopted by the European Union to force Member States to switch to zero-emission energy sources can be presented using an energy ladder model that considers climate goals (Figure 2).

The European Commission assumes that ETS and ETS2 help achieve zero emissions in Europe by 2050. However, these tools may diminish the competitiveness of the European economy due to increased energy production costs. One may also question the efficacy of such actions in addressing global pollution, given that the primary polluters are China and the United States (

Table 1. CO₂ emissions by emitters.

Country	CO2 Emissions 2022 Gigatons CO2	% of World CO2 Emissions 2022
Total	38,526.247	100
China	12,667.43	32.88
USA	4853.78	12.6
India	2693.03	6.99
Russia	1909.04	4.96
Japan	1082.65	2.81
Other countries	12,425.527	32.25
European Union	2894.79	7.51

Source: [69].

) [69].

4.2. Combating Energy Poverty in the European Union: Assumptions and Emerging Threats

The idea of energy poverty emerged in EU documents in 2009. It was explicitly referenced in the Electricity Directive (2009/72/EC, repealed) [42] and the Gas Directive (2009/73/EC) [80], which urged the EU Member States to create national action plans or other activities to address energy poverty. The energy package, titled “Clean Energy for All Europeans”, encompasses multiple legislative measures with provisions addressing energy poverty. A significant solution in the legislative framework is the requirement for Member States to evaluate the number of families experiencing energy poverty. The stipulation is specified in Article 3(3)(d) of the 2018 Governance Regulation [76] as a requisite component of the National Energy and Climate Plans (NECPs). Should the assessment indicate a considerable prevalence of energy-poor households, the relevant Member State must incorporate a national indicative objective aimed at alleviating energy poverty within its NECP, delineate policies and measures to tackle energy poverty (including timelines), and provide progress reports to the European Commission [76].

The 2019 revised Electricity Directive permits public interventions in electricity pricing for energy-poor or vulnerable household customers (Article 5). It extends the requirement for reporting on the number of energy-poor households to those Member States implementing such interventions (Article 5(5)) [81]. Article 28 of this directive also mandates Member States to protect vulnerable customers (under the risk of energy poverty) through various measures. These include adequate safeguards, a prohibition on electricity disconnections during critical times, transparency in contractual terms and conditions, access to general information and dispute resolution mechanisms, benefits under social security systems, support for energy efficiency improvements, and other measures addressing energy poverty within the broader context of poverty [81]. Moreover, Article 27 of the Electricity Directive requires Member States to provide universal service to all household customers and, where appropriate, small enterprises. This includes the right to receive electricity of a specified quality at competitive, transparent, and non-discriminatory prices. Member States must impose on distribution system operators the duty to connect customers to their networks, as specified in the directive [81]. The 2009 Gas Directive includes provisions to protect vulnerable customers, including safeguards against disconnections during critical periods (e.g., lower temperature) [42].

In its energy savings obligations, the Energy Efficiency Directive (2012/27/EU, amended in 2021) requires Member States to consider alleviating energy poverty. This involves prioritising national energy efficiency measures or alternative programs that benefit vulnerable households, especially those affected by energy poverty [81]. The Energy Performance of Buildings Directive (2010/31/EU), amended by Directive (EU) 2018/844 and last revised in 2021, compels Member States to create long-term renovation strategies as part of their National Energy and Climate Plans (NECPs). According to Article 2a(1)(d), such strategies must include an overview of policies aimed at improving the worst-performing segments of national building stock and outline national actions relevant to alleviating energy poverty [82].

While the Renewable Energy Directive (EU) 2018/2001 does not explicitly address energy poverty, it promotes the accessibility of renewable energy for low-income and vulnerable households, for instance, through self-consumption options that enable households to generate energy for their use [83].

The regulation on a social climate fund [84,85], designed to offset the future costs of extending the emissions trading system (ETS) to the building and road transport sectors, identifies households experiencing energy poverty as key beneficiaries of the fund (Article 1) and defines energy poverty (Article 2). The social climate plans must estimate how the inclusion of buildings and road transport in the ETS will impact households, particularly regarding energy poverty (Article 4). Access to support from the social climate fund is contingent upon achieving designated milestones and targets to reduce the number of vulnerable households, particularly those in energy poverty (Article 5). The implementation progress report for the plan (included in the national energy and climate progress report) must contain detailed data on the number of households in energy poverty and, where applicable, on progress towards the national objective of reducing energy poverty. The fund also addresses the issue of transport poverty [84,85].

In October 2022, the Council of the EU adopted a regulation to address high energy prices through emergency measures. The regulation states that states can use finances for direct transfers to customers, reductions in network tariffs, and to encourage customer investments in renewable energy and energy efficiency. Additionally, the regulation allows Member States to intervene temporarily in price setting [86].

Poland developed the NECP in 2019. It states that “it is planned to create a comprehensive state policy to solve the problem of energy poverty. The proposed comprehensive public policy will reduce energy poverty and protect vulnerable consumers” ([87], p. 59). It was stated that the following tasks were realised: (1) create a definition of energy poverty adapted to Polish conditions, (2) develop a coherent methodology for diagnosing it. A vulnerable electricity consumer is defined in the Energy Law and entitled to a flat-rate energy allowance. The amount of the energy allowance is announced annually by the minister responsible for energy. It depends on the electricity consumption limit product and the average electricity price for a household consumer [87].

In 2020, EPOV released the report above detailing the implementation of energy poverty regulations by Member States inside their NECPs, along with an extensive review of energy poverty initiatives in each Member State. For Poland, the NECP mentions a comprehensive state policy against energy poverty, defining energy poverty and the relevant indicators to determine the number of households affected. Currently, the key policy is an energy allowance for vulnerable consumers. Energy efficiency for households and infrastructure investments (district heating networks) are priorities [88].

A 2022 study on “Energy Poverty National Indicators” suggested more diagnostic methods for evaluating energy poverty and realising mitigation strategies. Poland submitted its draft updated integrated national energy and climate plan on 1 March 2024. Reducing energy poverty is a goal (point 4.5.1) in this plan. The plan states that, according to forecasts, Poland can stabilise the scale of energy poverty at a level of no more than 11 per cent in 2030 and no more than 7 per cent in 2040. It lists actions aimed at monitoring and reducing the scale of energy poverty, including improving the energy efficiency of buildings and subsidies for the purchase of energy for people eligible for this type of assistance [89]. The European Commission formulated 23 recommendations for the Polish plan mentioned above. Among others, Poland was obliged to provide additional analysis on the relevant climate vulnerabilities and risks regarding achieving national objectives, targets, and contributions, as well as the policies and measures in the different dimensions of the Energy Union [90]. However, the European Commission could not verify the Polish realisation of its recommendations six months before the final update of national energy and climate plans was due (as required by Article 9(2) of Regulation (EU) 2018/1999) [90].

The EU initiatives have not reduced energy poverty, as the number of Europeans unable to keep their homes adequately warm is growing, from 6.9 per cent in 2021 to 10.6 per cent in 2023 [91]. According to the European Commission Energy Poverty Advisory Hub, the inability to keep home adequately warm is not so high in Poland compared to other EU Member States (Figure 3) [92].

The worst situation was in 2023 in the southern countries, Latvia, France, and Germany. In Poland, 4.7 per cent of households have problems keeping their houses adequately warm [92].

The Baltic countries, Romania and southern European countries also had the highest percentage of people at risk of poverty or social exclusion in 2023. For example, Estonia has 24.2 per cent of the population, Spain and Romania have 26.5 and 32 per cent, respectively, and Germany has 21.3 per cent. Poland was at a similar level to Finland, the Netherlands, Denmark, and Belgium, and the percentage of people at risk did not exceed 16.3 per cent of the population in 2023 [93]. This exceptional situation, in which energy poverty did not increase in Poland, was a combination of many initiatives. The act prepared and passed by the Ministry of Energy introduced a program in Poland consisting of four actions that allowed electricity prices to stabilise in 2019. The act applied to all recipients in the country, i.e., over 17.5 million recipients of electricity, including households, local governments, enterprises, hospitals, hospices, and orphanages. The first action was to reduce the excise tax on energy from PLN 20/MWh to PLN 5/MWh. This reduced the bills of electricity recipients by PLN 1.85 billion in 2019. The second action was to reduce the transitional fee for all electricity recipients by 95 per cent. Thanks to this change, the electricity bills of recipients in Poland decreased by PLN 2.24 billion. The third change was the direct refund of the lost revenue of electricity trading companies. Around PLN 4 billion has been earmarked for this purpose. The fourth element is around PLN 1 billion allocation for pro-environmental investments. The act contains a mechanism for amending previously concluded agreements so that electricity recipients who concluded contracts unfavourable to them in the second half of 2018 are not harmed. The price of electricity from 30 June 2018 was adopted as the reference price. Funds for the solutions prepared under the act came from the sale of an additional 55.8 million tonnes of CO₂ emission allowances, the revenues from which have not yet been included in the budget for 2019. This amounts to around PLN 5 billion. The European Commission agreed to sell this additional pool on 5 December 2018. The remaining part came from reduced excise duty and a transitional fee for the electricity supply [94]. In the case of gas supplies, although its prices have increased, the distribution fees for the supply of gas to households have decreased, which has curbed the rapid price increase [95]. Since 1 April 2016, the “500 Plus” program has been introduced in Poland, which assumes that a parent receives PLN 500 (now PLN 800) for each child every month regardless of income and whether they are employed or unemployed [96]. The minimum wage in Poland has also increased. Thus, the minimum wage in Poland was 28 per cent of the average salary in 2002 and 32 per cent of the average wage in 2007. By 2016, it had increased to 43 per cent of the average salary. In 2023 and 2024, the minimum wage increased by 43 per cent, while the ratio to the average salary increased from 42.6 per cent in 2022 to 52 per cent in 2025 [97]. All this meant that, despite changes in the prices of energy carriers and their supply to households, energy poverty did not increase in Poland.

In addition, Poland has introduced subsidy programs for the thermal modernisation of buildings and installations of renewable energy sources (RES). The scale of subsidy is as follows: (1) 36 per cent or 41 per cent for thermal modernisation of buildings (combined with RES); (2) 80 per cent or 90 per cent for thermal modernisation or renovation of municipal buildings (with apartments for the poorest) (historical buildings or located in revitalised areas); (3) 50 per cent for RES installations in multi-family buildings; (4) 80 per cent for the renovation of municipal apartments; (5) government subsidy ranges from 26 per cent to 41 per cent of the project costs. Subsidies for thermal modernisation of a house and replacement of heating systems amount to PLN 66,000 for essential support, up to PLN 99,000 for the medium level of subsidy, and up to PLN 135,000 for the highest level of support [98,99].

In 2017 (before ETS2 implementation in the EU), it was reported that 1.33 million out of 13.57 million households in Poland, representing 9.8 per cent, were considered energy poor. This issue affected approximately 3.35 million people out of Poland’s total population of 38 million, or about 8.8 per cent. Energy-poor people had difficulty paying utility bills and heating homes [93].

Even if Poland’s situation was better in 2023 than in 2017, due to the structure of fuels, mainly coal, used for energy production and burdened with carbon dioxide emission fees, the situation may deteriorate after the implementation of ETS2.

4.3. The Risk of ETS and ETS2 Implementation in Poland

In Poland, consumer energy prices are predominantly “official”, whereas enterprises incur charges reflecting production expenses, including the acquisition of emission allowances by electricity-generating firms. Subsidising end energy consumers’ bills is not “free”; energy corporations obtain subsidies that influence taxpayer-funded market pricing [100]. Due to its economic potential (22nd economy in the world—GDP 809.2 billion USD) [68] and the structure of energy production based mainly on coal, Poland is one of the largest emitters of carbon dioxide in the EU (

Table 2. The biggest CO₂ emissions by emitters in the European Union.

Country	CO2 Emissions 2022 Million Tonnes
Germany	673.6
Italy	322.95
Poland	321.95
France	315.3
Spain	254.36

) [69].

Although the ETS2 framework will mirror the existing ETS system, it incorporates several notable modifications, such as eliminating free allowances (previously allocated to governments; Poland has received EUR 5–6 billion annually under the ETS in recent years) [100]. In Poland, 70 per cent of energy is derived from coal, and about 40 per cent of the market price of power is attributable to fees that electricity providers incur for acquiring carbon dioxide emission allowances [100]. In such a structure of energy production, a 5 per cent annual reduction in the number of allowances awarded for emissions will create a problem in Poland, and the expenses associated with allowances will escalate. The justification for this statement is as follows [100]: The predicted total cost of the ETS2 system for the Polish economy varies significantly, ranging from a comparatively benign PLN 21.2 billion to an exorbitant PLN 96.5 billion annually, contingent upon the future price of emission allowances within the ETS2 framework [100]. In 2025, the state budget revenues will amount to PLN 632.6 billion and expenditures to PLN 921.62 billion. The state budget deficit is to amount to PLN 288.77 billion. Spending on national defence in 2025 will reach PLN 186.6 billion [101]. Although, as stated above, the cost of ETS2 may amount to over PLN 96 billion per year if one adds to this the cumulative expenditures on the energy transformation (see below in the article), including those related to the construction of a nuclear power plant—approximately PLN 115 billion [102], or transmission networks, it turns out that the cost of transformation and simultaneous incurring of EST2 costs will exceed 10 per cent of the annual state budget (comparison to the state budget in 2025), which is a significant burden for the state and the economy. These expenses caused by the implementation of ETS2 will affect inflation, increasing the costs of energy, heating, and consumer goods, thus diminishing household income. The justification for this statement is as follows: the average Polish household is estimated to emit over 6 tonnes of carbon dioxide annually, resulting in supplementary expenses between PLN 1560 per year (approximately PLN 130 monthly, assuming allowances of 45 euros for each CO₂ tonne) and PLN 7100 per year (around PLN 600 monthly, assuming allowances of 200 euros for each CO₂ tonne). Owners of combustion vehicles will be required to purchase allowances for carbon dioxide emissions, perhaps incorporated into gasoline prices. Fuel distribution firms must buy carbon dioxide emission allowances commensurate with the product volume. Each litre of combusted fuel produces a specific quantity of carbon dioxide, necessitating the acquisition of permits. For instance, with a carbon allowance price of 45 euros per tonne, one may anticipate an increase in the price per litre of gasoline by approximately 47 groszy for the following reasons. One litre of petrol produces approximately 2.31 kg of carbon dioxide. The expense of allowances per litre of gasoline is calculated as follows: 2.31 kg multiplied by 45 euros for 1000 kg equals 0.104 euros. At an exchange rate of 4.5 PLN per euro, 0.104 euros multiplied by 4.5 PLN is 0.468 PLN, approximating 47 groszy for every litre of petrol. For diesel, the calculations are analogous, with the price rise for one litre of this fuel around 54 groszy. One litre of diesel fuel releases approximately 2.68 kg of carbon dioxide. The cost of permits per litre of diesel is calculated as follows: 2.68 kg multiplied by 45 euros every 1000 kg equals 0.121 euros. At an exchange rate of 4.5 PLN per euro, 0.121 euros multiplied by 4.5 PLN equals 0.544 PLN, approximately 54 groszy every litre of diesel. If the rates of carbon dioxide emission allowances rise from 45 euros to 200 euros per tonne, fuel expenses may escalate significantly. In this situation, the price per litre of gasoline might increase by more than 2 PLN, rather than 47 groszy. This means that the price per litre of gasoline, which cost PLN 6.50 in February 2025, might cost PLN 8.50 (an increase of about 30 per cent). Of course, the price of a litre of petrol or diesel depends on other variables, particularly the cost of crude oil on the market. However, this estimate indicates the measurable effects of implementing ETS2 in Poland. The operational mechanics of ETS2 in construction will be similar. The construction materials that generate carbon dioxide during production will inevitably increase the costs of business [100].

The expenses for heating flats and homes will inevitably rise. One may project a scenario where gas heating expenses may increase by 500 PLN per year, with current expenditures ranging from 2500 to 3000 PLN per year. The variances in the projected costs of allowances mainly arise from market dynamics and the potential for speculation. ETS2 implements a “soft cap” on the allowance price, set at EUR 45 per CO₂ tonne. Should the price surpass this threshold for two consecutive months, an extra 20 million allowances will be available to stabilise prices. Nonetheless, if financial investors allocate adequate capital, they can elevate prices significantly, potentially reaching EUR 200 per CO₂ tonne. This arises from the restricted availability of allowances and the potential for acquisition through auctions, which fosters speculation. The impoverished, particularly those in rural regions with elevated heating expenses, will experience the most significant effect of EST2 on household budgets [100]. Affluent individuals capable of upgrading their properties, investing in photovoltaic systems and energy storage solutions, and purchasing electric vehicles will experience a less significant impact from the associated expenditures [100].

Although, in 2024, as the Polish Central Statistical Office reported, the average salary in the corporate sector increased by 10 per cent year-on-year, such an increase was not recorded in the public sector or the group of retirees, i.e., people earning the least [103]. The number of retirees constitutes 24.7 per cent of the entire population of Poland [104], and the average monthly nominal gross pension was PLN 3933.48 [104]. More than half of the full-time positions (68.4 per cent) were in the private sector [105]. The average monthly gross salary in the corporate sector was PLN 8821.25 [106]. At the end of 2024, the registered unemployment rate was 5.1 per cent [107]. Under Art. 2 of the Act of 23 May 2024, on the energy voucher and amending certain acts to limit the prices of electricity, natural gas and district heating [108], some people living in Poland may obtain an energy voucher, a one-time cash benefit. Such a voucher is available to a single-person household whose average monthly income did not exceed PLN 2500 and a multi-person household whose average income per person did not exceed PLN 1700. This refers to net income, precisely defined in art. 3 point 1 of the Act of 28 November 2003, on family benefits [109], e.g., in the case of income from work reduced by, e.g., costs of obtaining income, tax, contributions, and after deducting the amounts of alimony provided to other people. The energy voucher will be paid at the end of 2024 and the beginning of 2025. The payment date depends on the submission date of the application.

These data confirm the previous statement that many people, even using state aid, will still be at risk of energy poverty after implementing ETS2. Therefore, this study confirms earlier analysis [60] about Poland’s energy poverty risk. To alleviate the adverse financial impacts, a climate social fund will be established to offset the expenses incurred by the most impoverished individuals living in the EU. Poland may obtain approximately EUR 15.3 billion (roughly PLN 70 billion) from this fund between 2025 and 2032. However, financial resources from this fund will not cover increased prices for products and services resulting from the increased cost of energy production. Consequently, following the establishment of the Climate Fund and considering the indicator of poverty that exists in Poland, the majority of expenses will be shouldered by the middle class, who are insufficiently affluent enough to invest in the solutions favoured by the European Commission, yet too affluent to get financial assistance [100].

Increased costs associated with carbon dioxide emissions will impact the industry, elevating production expenses and potentially diminishing the international competitiveness of Polish firms. It creates the risk that companies may be compelled to transfer production to nations with less stringent carbon dioxide emission restrictions, resulting in “carbon leakage”. The Carbon Border Adjustment Mechanism (CBAM) is a new EU climate policy instrument (see Regulation (EU) 2023/956 of the European Parliament and of the Council of 10 May 2023 establishing the CBAM). CBAM is a mechanism for adjusting prices at borders considering CO₂ emissions. Therefore, CBAM is called a border carbon tax. Its main goal is to prevent the “leakage” of CO₂ emissions outside the European Union [110]. The implementation of a carbon tariff (CBAM) aims to mitigate this leakage; nonetheless, there exists a possibility that non-EU nations may impose retaliatory tariffs, further encumbering Polish exports. The ETS2 system, similar to the ETS, may be susceptible to speculation. Financial institutions may employ market processes to inflate the prices of emission allowances artificially. Implementing a soft cap of EUR 45 per CO₂ tonne aims to stabilise prices; nonetheless, there is a potential risk that substantial investments by speculators may surpass this threshold, resulting in price escalations [100].

In the case of Poland, which has no nuclear power plants and limited capacity to produce energy from renewable sources, the cost of energy production will increase because fossil fuels will still be mainly used to produce energy. Total energy supply (TES) encompasses all energy produced or imported by a country, excluding what is exported or stored. It reflects the total energy needed to meet the demands of end users within the country. The most significant sources of energy in Poland in 2023 were the following. coal—36.1 per cent of TES; oil—32.6 per cent of TES; natural gas—16.2 per cent of TES; biofuels and waste—11.7 per cent of TES; other, including renewable sources—3.4 per cent of TES [84]. In 2024, the share of renewable energy sources in electricity production was 29.6 per cent, with the largest amount of electricity generated in wind farms (14.7 per cent of energy generation) [111].

In Poland’s energy policy until 2040, the Ministry of Climate and Environment assumed the following indicators: In 2030, electricity production will be based on coal combustion to a maximum of 56 per cent. It is assumed that at least 23 per cent of renewable energy sources will be used in final energy consumption in 2030. It is also assumed that nuclear energy will be implemented in 2033 and that GHG emissions will be reduced by 30 per cent by 2030 (compared to 1990) [112]. These are assumptions that require financial outlays. The Ministry of Climate and Environment states that in 2021–2040, financial outlays may reach approximately PLN 1600 billion. Investments in the fuel and energy sectors will involve approximately PLN 867–890 billion. The forecasted outlays in the electricity generation sector will reach approximately PLN 320–342 billion, of which approximately 80 per cent will be allocated to zero-emission capacities, i.e., renewable energy sources and nuclear energy [112]. It should be added that the expenditures of the Polish budget in 2025 will amount to PLN 921.6 billion [113]. This means that an amount equal to almost two Polish budgets must be allocated for the energy transformation alone. This transformation is threatened by the risk of delays resulting from the geopolitical situation and the need to spend funds on armaments (almost 5 per cent of GDP per year). Financing the goals of the energy transformation requires continuous rapid economic growth. According to the Central Statistical Office, preliminary estimates indicate that Poland’s GDP increased by 2.9 percentage points in 2024 compared to 2023 [114]. This growth and more must be maintained in the following years to finance the energy transformation plan and other necessary public expenditures [115]. For now, electricity, heat production, and fuel for petrol and diesel cars will be expensive.

Polskie Sieci Elektroenergetyczne S.A. (PSE S.A.) is a sole-shareholder company of the State Treasury managing the National Power System in Poland as the transmission system operator, which is the owner of the highest voltage network [116]. Universal access and use of the advantages of electricity requires the efficient operation of an extensive system of devices for its generation, transmission and distribution. Electricity supplied to homes is generated in power plants. In Poland, these are mainly thermal power plants fired with brown or hard coal. The transmission of energy from the power plant to the recipient is possible thanks to an extensive network of power lines and stations [117]. Energy storage is one of the pillars of an effective energy system with a growing share of renewable energy sources. Per the development plan for meeting the electricity demand for 2023–2032, PSE S.A. will allocate almost PLN 62 billion for infrastructure investments. In 2020–2022, expenditures on investments in transmission networks amounted to PLN 3.35 billion. According to the PSE S.A. data, 1746 km of new lines were built during this period. Another 742 km of lines were modernised. One new power station was built, and 18 were modernised. Due to the energy transformation and the increase in renewable energy sources in energy production, investments must include the construction of energy storage facilities that secure the operation of the power grid and reduce the effects of the unstable nature of renewable energy sources. A significant technological change is constructing a high-voltage direct current (HVDC) line connecting the north and south of Poland. It enables the transmission of energy generated in onshore and offshore wind sources from the north to industry in the south [118].

As stated earlier, these investments and modernisations of transmission networks require significant financial outlays while simultaneously financing expenses related to state security caused by a situation unseen in Europe since 1945, such as the war between Russia and Ukraine, which borders Poland. Incurring such significant expenses is possible with a well-functioning economy that is competitive in terms of price and not burdened with additional fees for greenhouse gas emissions due to the combustion of hard coal and brown coal for energy production.

Implementing ETS2 in a country where energy production is mainly based on fossil fuels will generate insufficient access to affordable energy services and may limit economic and human development. This exhausts the features of energy poverty identified by Reddy. Based on technological, physical, and economic criteria, one may state that the lack of energy produced by nuclear plants or from renewable sources creates a technological threshold. Energy poverty primarily constitutes a lack of access to “environmentally neutral” energy services. Traditional energy production generates air pollution, increasing susceptibility to illness. Economic thresholds will mainly include the ability to finance increased energy costs and the challenge of sustaining sufficient indoor temperatures, particularly during autumn and winter. Increased maintenance costs for companies and individual energy users can result in an inverted energy ladder (Figure 4).

This means that the higher cost of leaving may cause a return to using environmentally harmful but cheaper fuels and distortion of carbon dioxide emission reporting. Because of legal restrictions, energy consumers may use fuels from the black market, as shown by Mexican, Italian, and the United Nations Office on Drugs and Crime data. The development of the black market is linked with corruption [119,120,121,122,123,124].

The producers can also use “carbon leakage”. The 1997 Kyoto Protocol on climate change mandates industrialised nations to commence the global initiative to reduce anthropogenic greenhouse gas emissions (GHG). The study in other countries [125] indicates that substantial migration of energy-intensive industries from the OECD may transpire, contingent upon the market structure, with leakage rates reaching up to 130 per cent, whereby GHG control strategies in industrialised nations could increase global emissions. Nonetheless, prior research reveals no instances indicating climate initiatives result in “carbon leakage”. The literature, e.g., [126,127,128], emphasises that this absence of proof is partially attributable to protecting crucial industrial sectors, which conflicts with the decarbonisation strategy. Sartor and Spencer [129] noticed that the risks of carbon leakage appear negligible for Poland under the current design of the ETS. The situation can change because ETS2 will cover and address the CO₂ emissions from fuel combustion in buildings, road transport, and other sectors (mainly small industries not covered by the existing EU ETS).

There are tangible and intangible costs associated with ETS and ETS2 implementation. Tangible costs were discussed above, and it was pointed out that they are challenging to estimate unequivocally because their size will depend on the supply–demand balance. Considering intangible costs, price speculation is not the only threat to implementing ETS2. With increased household living costs, corruption may return, destroying reliable accounting of greenhouse gas emissions and energy accountability [130]. Transparency International data on corruption threats in the individual EU Member States indicate that most of these countries are struggling with corruption. The only exceptions in this respect are the Scandinavian countries [131].

5. Conclusions

This study resolves the research problem, positively verifies the hypothesis, and proves that ETS2 implementation in a country with an energy sector based mainly on fossil fuels may increase energy poverty. The current initiatives of the European Union aimed at drastically reducing greenhouse gas emissions, including introducing a new energy ladder that considers environmental protection requirements, are supplemented by initiatives to prevent energy poverty. However, this problem should be viewed much more broadly. Energy transformation and protective solutions that eliminate the negative consequences of the increase in the prices of energy produced using fossil fuels require significant financial outlays. These, in turn, are impossible without a strong and, therefore, competitive economy. This is impossible when this economy uses expensive electricity produced from fossil fuels and is subject to additional emission fees. Research has clearly shown that implementing solutions provided for ETS2 may negatively affect the development of the economy and the daily functioning of households in Poland—a country whose energy sector is predominantly based on fossil fuels. This conclusion results from the analysis conducted during the research. It is challenging to state prices clearly in a few years. However, current experience suggests that climate fees will significantly increase energy prices. Destabilising the economy in a country bordering an unstable environment where Russia is waging war in Ukraine poses a danger to the entire European Union. Therefore, it is necessary to consider modifying the ETS and ETS2 systems to include the differences in advancing energy transformation in the EU Member States to a greater extent than before. Based on the findings, one may suggest the following policy mechanism. The European Commission should consider differentiated emissions caps for coal-reliant economies, expanded transition funding mechanisms, and lengthier transition periods for countries still struggling with equalising their level of development and are using European funds. The study also contributes to the development of theory. A model of the energy and climate ladder and an inverted energy ladder were formulated, indicating the threats resulting from the introduction of energy reforms that are not adapted to the capabilities of all EU Member States. Like any study, this one has certain limitations. One of them is that, due to the study’s prognostic nature, it is impossible to fully prove the accuracy of the analysis of the energy prices due to climate fees in a few years. Moreover, the focus was on one of the largest economies in the world—Poland, but the research will be more comprehensive when it covers all EU Member States. Being aware of this, the authors indicate further direction for the study.

Although the research context is focused on the EU, the emerging landscape is broader. It is possible that solutions consisting of administratively forcing companies to reduce greenhouse gas emissions may be permanently introduced in non-EU countries. For this reason, the EU experience may be valuable for practitioners and theorists looking for a link between decarbonisation policy and socioeconomic conditions.