Policy Brief

The way forward for a low-carbon industry in Romania

Romania’s industry will need to transform fundamentally to align with climate commitments and remain competitive in a low-carbon world. With increasing pressure from EU policy and a race to decarbonise industrial production in EU Member States, there are progressively fewer windows of opportunity for implementing the new processes and technologies required for greening heavy industry. A fragmented national policy framework and a narrow fiscal space mean that Romania will face significant difficulties in keeping its industry competitive. However, it also has key advantages it can capitalise on to become a low-carbon industry leader. To achieve economy-wide net zero emissions by 2050, the main pathways for industrial decarbonisation are electrification, continuous improvements in energy and resource efficiency, the uptake of renewable hydrogen and other low-carbon fuels, and carbon capture, utilisation, and storage. Romania’s primary steel, cement, and chemicals production (particularly fertilisers) require the deepest transformation to enable industrial emissions reductions. The technologies needed to achieve these changes are costly, have long lead times, and in some cases imply new materials and supply chains. Furthermore, industrial transformation is not just technological – concerted action will be needed to safeguard the rights of workers in industrialised regions and prepare them for meaningful employment in Romania’s decarbonised industries and in those new industries which may emerge. To decarbonise Romania’s industry sustainably and justly, three main areas of action must be addressed: industrial policy, funding and market creation, and infrastructure development. Firstly, Romania needs a cornerstone industrial strategy anchored in long-term climate commitments and driven by selective support rather than across-the-board crisis management. This industrial strategy must clearly assign responsibilities to competent authorities, commit to funding and financing instruments, and address socio-economic impact, supply chain management, and research, development, and innovation. Romania’s wider domestic policy framework, as well as its positioning in EU negotiations, must also be consistent with the commitments and goals of its industrial policy. Secondly, industrial transformation in Romania will require a massive mobilisation of funding and the stimulation of new markets for green industrial products. As a country with a comparatively low fiscal space, Romania cannot rely excessively on state aid granted to industrial producers, as done in countries such as Germany and France. Instead, eventual state aid schemes targeted at competitive industries should be complemented by the use of EU funding opportunities, including the Modernisation Fund and the Innovation Fund, the unlocking private financing, and the implementation of green public procurement to stimulate a reliable lead market for products such as low-carbon steel and concrete. There are significant opportunities in this space, given Romania’s massive planned spending on large-scale infrastructure projects. Finally, decarbonising Romania’s industry will require huge infrastructure for enabling renewable electricity, hydrogen transport, and carbon dioxide (CO2) transport and storage. The scale of the challenge is significant: electricity consumption will increase and its geographical distribution will change, straining an unprepared transmission grid; new pipelines will be needed for hydrogen and CO2 transport; and CO2 storage capacities must be developed very rapidly. Romania must thus invest significantly in the expansion and strengthening of the electricity transmission grid, and in essence start from scratch in developing a network of hydrogen and CO2 pipelines, as well as CO2 storage. These key actions for decarbonising Romania’s industry will not be easy. They will require massive investment, coordination within the state apparatus and with industry, and significantly more political engagement on the subject. However, the benefits are undeniable: increased industrial competitiveness, a well-prepared workforce, reliable infrastructure, and a significant contribution to Romania’s climate ambitions. Reaping these benefits will depend first and foremost on understanding the magnitude of the challenge, and subsequently on internalizing it in concrete policy, funding, and infrastructure measures to enable decarbonisation at the required scale and pace. Luciana Miu, EPG Head of Clean Economy Luciana Miu is the Head of Clean Economy at Energy Policy Group. She holds a Master’s degree in Sustainable Energy Systems from the University of Edinburgh and a PhD in Energy Efficiency of Residential Buildings from the Imperial College London. Before joining EPG, Luciana worked for the UK Parliament and for the British Government’s Department of Business, Energy and Industrial Strategy (BEIS), as well as a consultant for Climate-KIC and London City Hall. Contact: luciana.miu@enpg.ro

Distributional impact of carbon pricing in Romania

Carbon taxes with revenue redistribution represent a promising policy option for reducing emissions and energy poverty at the same time. A carbon tax increases the prices of goods in proportion to their embedded emissions and creates incentives for consumers and producers to shift to lower-carbon alternatives. The revenues collected can be directed at lower-income households both for income support and emissions-reducing interventions, such as energy efficiency, distributed renewable energy, electric heating and transport. At the same time, carbon taxes are politically sensitive. Increasing the price of emission-intensive goods, particularly energy, may reduce economic output in the short run and increase the cost-of-living for households, particularly for the ones affected by poverty. To add to the body of evidence on this relationship, we conduct a simulation of the effects of a generalized carbon tax on all consumption goods with revenue redistribution on GDP growth, employment, household welfare and energy poverty levels. The carbon tax is determined though an economic model at the levels required for a 40% reduction in emissions by 2032 compared to 2021. In absolute terms this means going below 70 Mt CO2 eq. of GHG emissions, almost a quarter of the 1990 level. The tax ranges between 2.95$/ tonne of CO2 in 2022 and 15.17$ in 2032, coming on top of the existing carbon price imposed through the EU Emissions Trading Scheme on power producers and heavy industry. The results show minimal negative effects on GDP growth (-0.12%) and employment (-0.02%) in 2032 compared to the baseline. Regarding the impact on households, the tax would generate a welfare loss between 0.8% for the highest income decile and 1.3% for the lowest decile, confirming the potential regressive effects. However, when revenue redistribution is designed as a lump-sum transfer, or price subsidy for lower-income households, the policy becomes progressive, and these households experience a welfare gain. This is also reflected in the energy poverty rates, which become lower with carbon taxes and redistribution than the baseline. ETS2 și Fondul Social Pentru Climă Constantin Postoiu, Head of Data Analytics Constantin is the Head of Data Analytics at EPG. He holds a PhD in Regional Development and a Master Degree in European Economics, both from Bucharest University of Economic Studies. From 2015 to 2017 he worked as advisor to the Chancellery of Prime Minister Dacian Ciolos where he led data driven policies and advised on education, poverty and public administration reform. Prior, he was a trainee at the EU Committee of the Regions, Europe 2020 Monitoring Platform. Co-founder of CivicNet organisation, Constantin was the initiator and coordinator of the web application meserii.ro. He is passionate about data analysis, data visualisation and data-based policies. Contact: constantin.postoiu@enpg.ro

Carbon Capture, Utilisation and Storage: challenges and policy recommendations from the ConsenCUS project

arbon capture, utilisation, and storage (CCUS) is increasingly in focus as a key contributor to reaching the EU’s net zero emissions target. However, major barriers such as lack of regulation and financing, low availability of CO2 transport and storage infrastructure, and low public awareness continue to pose challenges to the widespread deployment of CCUS technologies.

Decarbonising Romania’s Industry

The steel, cement and chemicals manufacturing sectors are central to Romania’s economy. Operational facilities in these sectors consume significant amounts of electricity, natural gas, and water, as well as specific feedstocks such as coking coal, steel scrap, and limestone. The production landscape is dynamic, with some facilities closing and others reopening or planning to increase their production. Against this background, the challenge of decarbonisation is significant: for national emissions to reach net zero by 2050, Romania’s industry will need to reduce its energy consumption in half, undergo massive electrification and a switch to hydrogen and biomass, improve material efficiency, and implement carbon capture and storage.

The impact of the proposed EU ETS 2 and the Social Climate Fund on emissions and welfare: evidence from literature and a new simulation...

Though this paper, we examine the literature for evidence on the effectiveness and economic and welfare impact of carbon pricing with revenue redistribution. We find that emissions reduction is moderate, unless carbon prices are high, while the economic and welfare impacts depend on the redistribution mechanism. With targeted redistribution, the policy tends to be progressive, helping reduce energy poverty and emissions at the same time. To add to the evidence base, we also present a modelling exercise of a theoretical carbon tax levied on all consumption goods.

What’s holding back large-scale renewable deployment in Romania?

Interest in renewable investments in Romania is back. It is now clear that renewable energy is the key to solving two of the main challenges currently faced throughout Europe: ensuring energy security and reducing greenhouse gas emissions. As a net electricity importer and having faced stubbornly high electricity prices even compared to other EU countries, Romania stands to benefit greatly from further tapping into its renewable potential.

Propunerea Comisiei Europene de Regulament de intervenție de urgență în privința prețurilor energiei: Comparație cu prevederile OUG 119/2022

Propunerea Comisiei Europene de Regulament din 14 septembrie privind prețurile energiei în UE se bazează pe un efort de reducere coordonată a cererii de electricitate la orele de vârf cu 5%, pe plafonarea veniturilor așa-numiților generatori inframarginali de electricitate și pe impozitarea profiturilor suplimentare ale companiilor de combustibili fosili.

Policy brief: foaie de parcurs pentru avansarea captării și stocării carbonului în România

Acest policy brief rezumă foaia de parcurs pentru avansarea captării și stocării carbonului (CCS) în România, dezvoltat de EPG în cadrul proiectului CCS4CEE. În această foaie de parcurs, EPG prezintă o serie de acțiuni concrete care trebuie implementate de către guvern, operatori economici și alți actori, pentru a realiza proiecte CCS și a contribui la atingerea țintelor de decarbonizare ale României.

Policy brief: a roadmap for advancing carbon capture and storage in Romania

This policy brief summarizes EPG’s roadmap for advancing CCS in Romania, written as part of the CCS4CEE project. In this roadmap, EPG presents a list of actions for implementation by government, economic operators and other actors, to make CCS projects a reality and contribute to Romania’s industrial decarbonization targets.

Captarea carbonului, un vector de decarbonare în România

Captarea și stocarea dioxidului de carbon (CCS) poate avea o contribuție importantă la decarbonarea economiei europene și române.

Ten Priority Areas for Romania Post COVID-19 Recovery: A Focus on Energy and Climate Policy

The post COVID-19 economic recovery represents a unique opportunity for setting Romania on a path of sustainable economic growth and for ensuring its competitiveness in a future decarbonised EU economy.

Falling behind the pack? Romania’s lack of ambition in non-ETS sectors may undermine the prospects for reaching the European Green Deal objectives

This policy brief argues that Romania’s lack of ambitiousness, especially in sectors that are not part of the Emissions Trading System, such as transport, buildings and agriculture, may both undermine the country’s ability to reach climate neutrality by 2050 and could put the Romanian economy at a comparative disadvantage compared to early movers.

The Impact of the COVID-19 Crisis on the European Green Deal: A Focus on Romania and Southeast Europe

The dip in carbon prices, also a result of lower energy demand, shows the adversarial impact that the coronavirus crisis can have on the European Green Deal. In Romania, a drop in energy prices threatens further investments in the sector, while potentially ill-conceived governmental interventions risk creating lasting and unforeseen imbalances

The opportunities of the Modernisation Fund for the energy transition in Central and Eastern Europe. State of play and implementation issues

One important conclusion from the workshop has been that there is a need for a dialogue between the Ministry of Energy and private and public stakeholders to discuss objectives and priorities in line with the long-term objectives of Romania and the EU.

Proposals for Potential Energy Policy Priorities during Romania’s 2019 Presidency of the Council of the European Union

The post COVID-19 economic recovery represents a unique opportunity for setting Romania on a path of sustainable economic growth and for ensuring its competitiveness in a future decarbonised EU economy.

Low emission road transport

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Principles of a flexible and stable petroleum fiscal framework

Romanian Government’s new approach to the oil and gas fiscal regime has all the features of a rigid framework, with meager chances of remaining stable on the long term. But how should a flexible and stable fiscal framework for upstream O&G look like?

Elements of an optimal fiscal regime for Romania’s offshore sector

The investment cycle of an oil project is long-term – typically 25-30 years, or longer for offshore projects. In addition, offshore projects in particular require large upfront exploration capital investments. Also, the investment risk for offshore exploration activities is high, and the cost recovery timeframe can be over a decade.

The need to update the romanian oil and gas legislation for exploration and production

Energy Policy Group, in partnership with the law firm Pachiu & Associates and PricewaterhouseCoopers (PwC), organized the roundtable discussion - Is it necessary to revise the Romanian oil & gas legislation?