On 13 November, the European Parliament voted in favour of the climate regulation on the 90% emission reduction target for 2040, one of the key instruments of which would be the emissions trading system to be introduced in 2028 for residential heating and cooling, transport and agricultural activities. The instrument is essentially a carbon tax that would artificially raise fuel prices and energy costs for households and farmers in order to curb consumption.
The move is difficult to justify with reason. The EU is responsible for only 6% of global greenhouse gas emissions, yet its citizens already pay significantly more for utilities and fuel than people living in other major regions.
Residential electricity and gas prices in the EU and the US
Last year, household electricity prices were 60% higher and gas prices 125% higher in the EU than in the US. A similar difference can be seen in the price of petrol: in January this year, a litre of fuel cost twice as much in the EU as in the US, and 65% more than in China. This makes Europe one of the most expensive continents in the world, which is reflected in the price of almost all products through transport costs.
Petrol prices in January 2025 (USD/litre)
High energy prices cause serious social problems: In 2024, 22% of EU citizens reported difficulties in heating their homes and 26% reported difficulties in paying their bills. The differences between countries can be explained mainly by differences in pricing regulations. Hungary, for example, was able to keep the proportion of those affected at the lowest level in the EU because it applies the Community’s strictest price regulations as part of its overhead cost reduction policy.
However, extending the Brussels carbon tax to households would have disastrous consequences. The technical prerequisite for introducing a quota trading system is the abolition of official price regulations, which would immediately pass market prices on to Hungarian households. In order to achieve the expected reduction in carbon dioxide emissions, significant further price increases would be necessary at EU level, which would also be passed on to residential prices. The measure would have a more drastic impact on countries that currently provide greater official protection to their residents: in other words, the most radical change would be seen in Hungarian prices.
According to Századvég’s estimates, the abolition of the overhead cost reduction policy and the introduction of a carbon tax would result in a 3.9-fold increase in Hungarians’ electricity and gas prices, which would mean an additional annual expense of 575,000 forints for an average household. To meet Brussels’ radical climate targets, fuel prices would have to rise by almost 50% in the year the measure is introduced, bringing the new equilibrium price of petrol in Hungary to 872 forints per litre and diesel to 886 forints.
In addition to the drastic increase in households’ and businesses’ transportation costs, the carbon tax would also raise the costs of agricultural work, which would be added to the carbon costs of farmers’ other activities. The new burdens would, for one thing, reduce the competitiveness of local agricultural businesses and, for another, would spill over into food prices, which—together with developments in the fuel market—would lead to increased inflationary pressures. Furthermore, emission reduction requirements are becoming increasingly stringent, which means that carbon tax rates—and thus energy and fuel prices—would continue to rise year after year.
Climate models suggest that this could limit the rise in global average temperatures to a maximum of 0.019 degrees Celsius by 2040, assuming that the 90% emission reductions targeted for the sectors concerned are achieved. It can therefore be stated that Brussels’ carbon tax would cause serious social damage for negligible climate protection benefits.
To calculate overhead costs, we used an exchange rate of 388 forints to the euro, November 2025 electricity market prices, and average gas prices for 2025. To achieve the 90% target for 2040, emissions must be reduced by an average of 9.6% between 2025 and 2028. We calculated the price increase required to achieve the emission target in the year the carbon tax is introduced based on average EU household prices in 2024 and an empirical price elasticity factor. Since the introduction of the system presupposes the phasing out of official price regulation, we calculated how much residential prices would rise in Hungary without the overhead cost reduction policy and then added the carbon surcharge calculated from European Union averages to this amount. In light of this, the current average monthly gas bill of 9,780 forints would increase to 38,508 forints by 2028, representing a 3.94-fold increase. The current monthly electricity bill, which is 6,673 forints, would rise to 25,832 forints.
To determine the price elasticity of fuel demand, we followed a price elasticity estimate modeled by the ECB. This suggests that a 1% relative increase in demand leads to an approximate 3.57% increase in prices. We assumed the same price reaction for diesel and petrol, while the average fuel price for the first ten months of 2025 was taken as the base price level. Assuming an average annual emission reduction of 6%, by 2028 the price of petrol will rise from 594.1 forints to 872.02 forints, while the price of diesel will rise from 604.1 forints to 886.69 forints. We obtain the annual price increase by multiplying the emission reduction by the price elasticity multiplier.
In order to calculate the impact of carbon tax on emissions, we need to determine the impact of carbon dioxide emissions on temperature. According to a comprehensive study by the IPCC, emissions equivalent to 1,000 GtCO2 raise the average temperature of the planet by 0.45 °C on average. According to data from the French SDES, EU emissions in 1990 were 4.8 GtCO2. Considering that, according to the target, emissions must be reduced by 90% compared to the base year of 1990 by 2040, this would amount to 0.48 GtCO2. Projecting this over a 50-year period and subtracting it from the cumulative emissions at 1990 levels (as if the annual value had not changed), we arrive at a value of 108.98 GtCO2 equivalent. The sectors concerned account for approximately 39% of total emissions, so a reduction in these sectors would reduce the increase in the Earth’s average temperature by 0.0191 °C over a 50-year period.
