Researcher Nerea Urrutia from Ituna Centre, together with Cristina Pizarro (University of the Basque Country, EHU), Iñaki Arto (Basque Centre for Climate Change, BC3), and Mikel Erkoreka, has published the article “The Fiscal and Socioeconomic Impact of the Energy Transition in the Transport Sector: The Case of the Basque Country” in the journal Energy Policy. The journal is among the leading internationally indexed journals in the fields of Economics and Energy, ranking 12th out of 626 journals in the Economics category according to the Journal Citation Reports’ Journal Impact Factor ranking.

This article forms part of Nerea Urrutia’s PhD thesis, which analyses the fiscal challenges of the climate-neutral economy transition by 2050 in line with the European Green Deal’s goals. It focuses on the regional level and examines the Basque Country, one of the sub-state entities with the greatest fiscal power in the European Union, and aims to quantify the implications of decarbonising the transport sector for public finances. To this end, it applies DERIO, a dynamic econometric New Keynesian Input-Output model, designed to evaluate the economic effects of scenarios and policies at regional level, particularly those related to energy and climate change. Our analysis indicates that transport electrification increases revenues from taxes on production, income, wealth, and corporate profits, as well as social-security contributions. However, it reduces receipts from taxes on products and yields an overall net decline in public revenues. The results highlight the complex, cross-sectoral transmission mechanisms at play during the transition and offer actionable insights for designing revenue-stable fiscal frameworks in the face of large structural changes.

Within the framework of regional energy policy studies in the EU, this paper aims to quantify and provide a comprehensive assessment of the electrification of road transport. In particular, we assess (i) how the transition to electric road transport and the displacement of fossil fuels will reshape the Basque Country’s fiscal and socioeconomic development by 2050; and (ii) the ensuing effect of the price of electricity. The hypothesis regarding the ultimate fiscal outcome remains unclear: long-term revenues from fuel and CO2 taxation are expected to decline substantially as electrification progresses, while reduced energy expenditure may increase household disposable income and, consequently, value-added tax and other consumption-based revenues.

We use the DERIO (Dynamic Econometric Regional Input-Output) model for the analysis and to quantify the fiscal and socioeconomic impact; it follows a New-Keynesian approach to provide a comprehensive and detailed representation of the Basque economy. This approach allows us to explore a multitude of interconnected dimensions of transport electrification affecting fiscal balances, including trade balances, energy costs, labour market, corporate profits, household income and wealth, and shifts in consumption patterns towards products with higher domestic value added.

As highlighted by our macroeconomic simulations, the transition presents a significant fiscal challenge for public administrations, as long- term financial sustainability is not the sole issue that governments confront because of the energy transition. In line with an institutional zero-deficit rule, the government will need to adjust its spending policies or implement structural tax reforms to enhance tax revenues. Consequently, public governments – and in this specific case, the Basque institutions – face a major policy dilemma: while the gradual elimination of fossil fuels is essential for achieving greenhouse gas reduction targets and advancing EU climate goals, it simultaneously leads to a structural fiscal shortfall that challenges the government’s capacity to maintain stable public finances and meet established fiscal targets. This subnational fiscal tension strongly echoes broader European debates on multilevel governance and intergovernmental fiscal relations. While decarbonisation frameworks and electromobility targets are predominantly dictated at national or supranational levels, the direct, immediate erosion of traditional energy tax bases heavily concentrates on subnational jurisdictions with decentralised tax competencies. Regional authorities cannot rely exclusively on broad-based fiscal expansions to resolve this dilemma. Although traditional adjustments to broad fiscal bases, such as VAT, income tax, or wealth taxation, may partially compensate for revenue losses, a comprehensive approach requires specialised, mobility-linked instruments to prevent distortionary effects on private consumption. In this regard, usage-based fiscal mechanisms represent a promising avenue for post-fossil fuel scenarios, particularly as the transition towards electric vehicles progressively reduces revenues from conventional fuel taxation. Instruments such as mileage taxes or vehicle-miles-travelled (VMT) fees could provide alternative mechanisms to finance transport infrastructure while structurally decoupling public revenues from fossil fuel consumption. However, their implementation requires consideration of the institutional allocation of fiscal competencies and coordination between different levels of government.

Furthermore, based on its strategic priorities, the government must incorporate into its public policies a comprehensive assessment of the transition’s implications for wealth redistribution and inequality. The marked polarization in employment and production observed in our sectoral results – characterized by an unprecedented boom in electricity distribution alongside a sharp contraction in traditional oil refining – calls for proactive regional industrial and labor policies. Fiscal policy and regional subsidies must act as tools for risk-mitigation and corporate reclassification. Rather than treating these localised employment losses as an inevitable forecast of definitive corporate exit, regional plans should utilise the projected expansion of the services and other sectors to absorb displaced workers. In tandem with the corporate shifts mentioned earlier, regional frameworks should support the active diversification strategies of major local energy providers into green hydrogen, synthetic fuels, and charging infrastructure, while deploying targeted workforce development and retraining programs to transition workers into the growing green economy.

Finally, the instability of energy markets simulated in our price sensitivity analysis underscores the complexity of designing long-term public policies, revealing how different pricing scenarios can fundamentally alter both revenue generation and regional economic resilience. As high electricity price paths significantly dampen corporate competitiveness and intensify government revenue pressures by limiting the compensatory revenues from production and labour taxes, public authorities must note that overly aggressive electricity taxation implemented to recover lost revenues could undermine the very goals of electrification, slow its adoption, and ultimately threaten the transition to a low-carbon economy. Conversely, since our low-price scenario confirms that affordable energy paths mitigate fiscal pressures by bolstering investment and gross capital formation, policymakers should carefully balance the immediate need for revenue recovery against the broader macroeconomic benefits of keeping energy costs competitive. Thus, a comprehensive, well-calibrated, and equitable approach is essential, ensuring that the fiscal impacts of the energy transition are effectively addressed through progressive adjustments while simultaneously promoting social equity, corporate adaptation, and environmental sustainability.

The article is available open access, and the full text can be downloaded [here].