New findings on fossil fuels and inflation in Poland
New Cambridge Econometrics analysis for the European Climate Foundation explores the role of energy prices in recent consumer price inflation in Poland, with a view to understanding the potential for faster energy transition measures to ease inflationary pressures and risks.
Cambridge Econometrics analysed energy system and inflation data from a variety of sources to understand the role of energy prices in Polish consumer price inflation.
The report also reviews Poland’s wider energy transition strategy, the Polish government’s response to the recent energy price increases and discusses how the future energy system can better protect consumers from sudden price hikes.
Key findings
Fossil fuels, including natural gas and coal, are responsible for a large share of consumer price inflation in Poland in the past 12 months.
- Fossil fuels accounted for roughly 40% to Poland’s overall rate of inflation, which stands at over 14%. Electricity prices have risen at a much slower pace, with an annualised increase of 5.1%.
- The price of household coal, which is widely used in heating Polish homes, increased by 157% between August 2021 and August 2022.
The increase in energy prices currently makes an average Polish household €914 worse off in 2022 compared to 2020.
- We estimate that the lowest income households in Poland now spend over a third more on energy than in 2020.
- In response to rising energy prices, the Polish government has heavily intervened in retail markets, by regulating prices and introducing cash transfers to households. The latest measures are estimated to cost the Polish Government around 1.5% of GDP.
Renewables are now much cheaper than fossil fuel-based electricity production and the cost of renewables is forecasted to fall further.
The rapid deployment of renewables could bring significant benefits to Poland, such as:
- Reducing Poland’s dependence on coal and gas in power generation.
- Reducing consumer exposure to volatile fossil fuel prices, if the deployment of renewables is coupled with an increased electrification of transport and household heating.
- Increasing the share of technologies with very low marginal cost in the electricity production, which can lower the average cost of electricity production.
- In the long term, the widespread deployment of renewables could bring down energy prices and limit the need for costly government intervention during times of high fossil fuel prices.