Balancing the books: unveiling the direct impact of an integrated energy system model on industries, households and government revenues

Background: The transition towards a sustainable energy system is reshaping the demand for final energy, driven by the diffusion of new end-use technologies. This shift not only impacts consumers’ energy expenses, but also holds implications for the public budget. Building on data from a German energy transition scenario, we analyse the direct impact of energy costs on industries, low-income households, and changes in government revenues from the taxes and levies on final energy carriers. Our analysis considers the impact of current policies and explores a scenario introducing additional excise tax rates to offset potential revenue losses.
Results: We found that substantial carbon price increases could generate revenues that offset the losses from excise taxes on fossil fuels while enabling the financing of renewable support from the public budget by the end of this decade. Nevertheless, a decline in government revenues from taxes and levies is anticipated after 2030 until the middle of the century due to the declining use of fossil fuels. Maintaining current excise tax revenues during the transition could be achieved by introducing additional excise taxes on fossil fuels and electricity. Lastly, our analysis indicated a continuous decline in household energy expenditures until 2050, whereas energy-intensive industries face adverse impacts due to decarbonisation.
Conclusions: This research provides valuable insights into the fiscal implications of the energy transition, shedding light on different industrial sectors and households while considering the evolving impact on the public budget. Policymakers may need to consider systemic reforms or alternative financing mechanisms outside the energy system to balance the books.