Climate change is undeniable, and human activities play a significant role. However, current climate policies fall short of leveraging the full potential of private sector actors—investors, businesses, and consumers—to effectively tackle the problem.
This is the core argument of a newly published report by a consortium of seven free-market think tanks from Poland, Bulgaria, Romania, the Czech Republic, Slovakia, Hungary, and Ukraine, coordinated by the Warsaw Enterprise Institute.
The “Energizing the Energy Sector in Central-Eastern Europe” report highlights that competitive electricity markets decarbonize 66 per cent faster than non-competitive ones. Despite this, the Central and Eastern European (CEE) region has yet to harness market potential fully. Researchers have identified 40 barriers that hinder competition, increase business costs, and deter private investment, thereby slowing decarbonization in these countries.
Economic freedom varies across the CEE region. The Czech Republic ranks highest with a relatively liberalized market, fewer barriers to entry, and more transparent regulations. Yet, even here, significant obstacles remain. For instance, completing a wind farm project takes at least seven years due to bureaucratic delays.
Romania, with moderate barriers, presents a generally favourable investment climate. In stark contrast, Hungary is the least economically free, marked by extensive government control and frequent legislative changes, creating a volatile environment for investors. Bulgaria faces substantial challenges, including high bureaucracy and regulatory instability, further deterring private investment.
In Poland, the energy market is effectively nationalised, with state-owned companies producing about 70% of the country’s energy, marginalizing private investments. The discretionary power wielded by government officials also blocks private investments in new energy capacities, such as Small Modular Reactors (SMRs).
A common challenge across all CEE countries is infrastructure. The region accounts for only 13% of the EU’s internal interconnection capacity despite making up 28.64% of the EU’s population, 15% of its GDP, and 17% of its electricity demand. Grid modernization and improved access to land and connections are essential to facilitate the energy transition.
The report critically examines the impact of EU climate policies on competition in CEE energy markets. While the EU promotes market openness and integration, it also allows market-distorting programs such as the Emissions Trading System (ETS) and Carbon Border Adjustment Mechanism (CBAM).
The report advocates for a “Pact for Freedom” among CEE countries to integrate their economic policies related to the energy market, envisioning Central and Eastern Europe as a unified special economic zone. This framework would harmonize regulations and tax solutions, fostering a coherent, interconnected energy ecosystem for over 110 million people and reducing CO2 emissions.
