A clean energy vision for Central and Eastern Europe amid uncertainty and fossil fuel price spikes

This article was originally published in CEENERGYNEWS.

Co-authored by Mara Balasa, a 2025 Clean Air Task Force CEE Fellow.

When energy prices spike, it’s not just markets that react, it’s households, factories, and entire economies. Throughout history, shocks have repeatedly affected the supply and price of fossil fuels, especially oil and natural gas. In the recent past, Europe has experienced a severe energy crisis that came with strong inflationary pressures and affected the way industries operate, which also translated into broader price increases for the population at large.

We now find ourselves in a similar situation where the supply of natural gas becomes uncertain, and prices are spiking once again. This poses serious challenges, especially to industrial producers that are reliant on this fuel for their processes. This supply shock makes production costlier directly, through higher prices in the global market, and indirectly. The indirect effect is driven by uncertainty, both supply uncertainty that can lead to bottlenecks in production, as well as policy uncertainty.

The problem with short-term support measures

Countries are now discussing various short-term support measures such as subsidies or price caps, aimed at bringing some immediate relief in these challenging times. For instance, Romania prolonged the gas price for households until 2027, a measure that has been introduced as a response to the energy crisis from 2022. Through an emergency decree, the government is also in the process of declaring a fuel crisis, which would include capping commercial fuel margins and limiting exports for six months.

However, just as support measures are introduced virtually overnight, they can also be taken away just as quickly, when the funds run out, or when governments shift their priorities. Becoming increasingly reliant on state support to overcome natural gas price spikes and shortages is not a resilient way forward. The same argument holds for the price of oil, too.

This is especially relevant in the context of Central and Eastern Europe (CEE). This region is a crucial geopolitical zone, situated between Western Europe, the Baltic and Black Seas and Russia, and previous disruptions to energy supply have already revealed its vulnerabilities, underscoring the need for decarbonisation pathways that also strengthen energy security and economic competitiveness.

Increasing import dependency

CEE countries have a tight fiscal space and display long-term overreliance on fossil fuel imports, making them more exposed to the volatility of global energy markets. In some of these countries, energy import dependency has been increasing from 2003 to 2023, with Poland more than tripling its share of new imports in the gross available energy (Figure 1). On a larger scale, the EU-level import dependency increase is attributed to patterns of consumption and production as the region is changing its energy mix.

In CEE, the pace of the development of renewable energy infrastructure did not match the phase-out of fossil fuel power generation, such that imports were needed. However, unlike the previous 2022 energy crisis, the region is now less dependent on pipeline gas and hence on a single supplier, but still very much exposed to the global market dynamics of liquified natural gas trade.

Figure 1. Energy imports dependency rate in 2003 vs. 2023

Several CEE states have recently signed a letter urging the EU to keep providing free allowances within the ETS in the context of the higher energy prices, thus highlighting their exposure to price volatility. This particular vulnerability of the region makes it even more urgent to consider the best way forward and think about an alternative future without fossil fuel dependence. Such a future can be achieved if CEE reinvents itself and its production processes.

Replacing fossil fuels

Decarbonisation plays a significant role, as replacing fossil fuels with direct electrification or other fuels, such as clean hydrogen, biomass and synthetic fuels, can achieve a higher degree of future competitiveness and energy security. This could reduce dependency on fossil fuel imports and exposure to external shocks in the global commodities markets.

Biomass and the resulting biogenic CO2 are high-value resources, and the competition for these will also shape decarbonisation pathways of countries and sectors, impacting net-zero commitments. For instance, emissions accounting is different when storing biogenic CO2 as opposed to using it for low-carbon chemicals, making allocation a topic of strategic interest.

The electricity-to-gas price ratio is the key determinant of investment decisions for industrial heat switching. Badly designed electricity taxing policies and volatile electricity markets can still hinder electrification. However, the deployment of renewables, coupled with clean firm electricity generation during low-wind, low-solar periods, will reduce the times when the marginal price of electricity is determined by volatile gas prices. This, combined with phasing out Emissions Trading System allowances and a subsequent higher carbon price, will make a stronger economic case for electrification.

This is where policymakers need to make progress, thus allowing decarbonisation to become a driver of competitiveness. At the same time, progress is also needed in areas such as the electrification of medium- to high-temperature processes. The question thus arises whether to prioritise the electrification of industry, or domestic heat and transport, and the answer should be based on identifying where electrification offers the greatest societal benefit.

Deploying and developing homegrown energy sources such as renewables, and complementing them with clean firm technologies that provide low-carbon electricity regardless of weather conditions, as well as stronger infrastructure, would lead to a resilient energy system. A nuclear power plant in Romania or a geothermal facility in Poland does not need Russian gas, American liquified natural gas, or Qatari shipments to run.

Nevertheless, a large-scale deployment of renewables comes with some risks as well, which are related to the intermittent nature of these technologies. This intermittency requires electricity systems to be increasingly flexible and can impose additional costs on transmission systems. It also adds energy storage costs, as storage can ensure that energy is available regardless of the weather. At the same time, it raises issues around dependence on critical raw materials.

The way forward is a strong, clean and mixed portfolio of technologies, diversified suppliers, and domestic clean manufacturing of essential supplies. Such an approach requires, however, long-term thinking and planning. Prioritisation frameworks should be employed to support industries in identifying which decarbonisation pathways are most suitable for their production processes. Industrial clusters and regional collaboration can further support this, enabling each country to make the best use of its resources while facilitating cooperation and knowledge sharing.

The time of distress caused by increased energy prices is challenging, but it can also be seen as an opportunity to rethink our energy systems and increase resilience. This can be achieved by scaling the production of domestic clean energy, decarbonising manufacturing, and providing a clear and predictable policy outlook that attracts further investment.

This is especially relevant in the CEE region, vulnerable due to its exposure to global energy markets, yet crucial from a geopolitical standpoint. It is time to be less reactive, focusing on short-term band-aids, and instead become more proactive in designing the path forward.