The Energy Community has commissioned Kantor and E3 M to prepare a study proposing a carbon pricing mechanism for the time horizon until 2040, suitable for the decarbonisation of the power and district heating sectors in the Contracting Parties. The PRIMES-IEM model was used to quantify five stylized scenarios for the introduction of carbon pricing in the power and district heating sectors in each CP: 1) Baseline Scenario, 2) Full Carbon Pricing and Market Fragmentation Scenario, 3) Gradual Carbon Pricing and Market Fragmentation Scenario, 4) Full Carbon Pricing and Market Integration Scenario and 5) Gradual Carbon Pricing and Market Integration Scenario.

Fossil fuels being by far the dominant energy source in district heating in the Energy Community, the study investigates the impact of each scenario on heat prices. The study puts forward a proposal for a Cap and Trade policy option in the power and district heating sectors, rather than a carbon tax, and also recommends the Gradual Carbon Pricing and Market Integration Scenario as the optimal approach for the Energy Community. Read more about the scenarios, policy options and recommendations in the Report.