Blog entry

Slovakia’s billion-euro opportunity: Redirecting climate revenues and fossil-fuel subsidies to tackle energy poverty

Amid this geopolitical turmoil, we at Friends of the Earth-CEPA (CEPA) have been assessing Slovakia’s potential to support long-term solutions to energy poverty through EU funding mechanisms. Our analysis reveals a staggering EUR 986 million that could be mobilised annually to finance energy poverty solutions in Slovakia.

A lifeline for vulnerable households left on the table

To reach this total, Slovakia must first address the chronic underutilisation of its existing resources. The Environmental Fund derives its revenues primarily from the EU Emissions Trading System (ETS), as well as from other environmental fees. However, its annual reports indicate a consistently low rate of expenditure, averaging only 37% annually between 2012 and 2024.

In theory, this means that Slovakia should have more than EUR 2.539 billion available through the Environmental Fund to finance environmental measures, such as energy efficiency improvements for low-income households.

Yet questions remain regarding the practical use of these resources. Historically, the Ministry of Finance has prioritised fiscal objectives over the climate goals of the Ministry of Environment, which has typically received insufficient support. This reflects the tendency of Slovak governments to favour the economic benefits of retaining funds in bank accounts to strengthen the country’s lending position, rather than directing them towards environmental spending.

The cost of inaction

The impact of this strategy is clear from the most recent data. In 2024, Environmental Fund revenues reached EUR 489 million, while expenditures amounted to only EUR 332 million – meaning just 68% of the available allocation was spent.

Slovakia should be using 100% of these annual revenues to meet its clean energy transition needs, rather than to improve its fiscal or lending position on international financial markets. In 2024 alone, this would have made an additional EUR 156 million available for environmental spending.

Looking at the broader trend, the average annual unspent amount between 2012 and 2024 was EUR 195 million – resources that could have been channelled directly into social climate solutions.

The Modernisation Fund’s untapped potential

Our calculations reveal a EUR 1.14 billion investment gap in the Modernisation Fund. Based on publicly available data, this represents a major surplus that remains unspent or unallocated compared to projected revenues. This gap is driven by different assumptions in ETS price projections over time, as well as the relatively slow pace of the Fund’s implementation – with less than one-third spenthalfway through the 2020–2030 period. The figure also represents almost 89% of Slovakia’s agreed EU contribution to the Social Climate Fund between 2028 and 2032.

There is already a positive precedent. The Ministry of the Environment has approved the allocation of EUR 186 million from the Modernisation Fund to the Renovate House programme, which is the first shortlisted measure under Slovakia’s social climate plan. More energy poverty and transport poverty solutions should follow.

At the same time, the Ministry of the Environment is preparing funding allocations for other areas, although these remain unclear despite our efforts to obtain further details through information requests. As a result, the final available amount could be lower.

It should also be noted that the social climate plan has yet to be published. However, a study prepared by technical assistance experts has already shortlisted several measures for potential support under the Social Climate Fund.

From fossil fuel subsidies to energy efficiency and renewable support

The national energy and climate plan lists dozens of subsidies in the energy sector, including support for fossil fuels. Most of these have no defined end date. They include highly problematic exemptions from excise duty for heat production from coal, combined heat and power (CHP), and fossil gas. Other fossil fuel subsidies include support for CHP within the system operation tariff, as well as regulated prices for gas supplied to households.

In its December 2024 review of expenditure and revenue in the energy sector, the Value for Money Division at the Ministry of Finance identified significant potential for savings in the energy sector, estimated to range between EUR 155.1 and 223.5 million per year. From a climate perspective, the most important measures include phasing out direct and indirect fossil fuel subsidies and aligning environmental taxes more closely with EU averages.

Additionally, the current government’s approach of placing price caps on gas, electricity and district heating – costed at EUR 385 million for 2026 – contradicts EU energy and climate policy, State aid rules, and initiatives such as the Affordable Energy Action Plan and the 8th Environment Action Programme. Several aspects of this approach are problematic:

The price-cap scheme ‘targets’ around 90% of Slovak households, reflecting weak prioritisation of support.
Under the broader definition of energy poverty proposed by the Institute for Forecasting of the Slovak Academy of Sciences, around 18% of households (330,000) are energy-poor, including those without access to electricity, making them ineligible to avail of the scheme.
It undermines the ‘energy efficiency first’ principle, as it removes incentives to invest in building renovations or replace gas boilers.
It fails to prioritise the most vulnerable households, including those relying on solid fuels such as biomass.
Households are given no incentive to transition away from coal and waste-based heating to more sustainable or legally compliant solutions, despite the availability of support programmes such as Green Solidarity.

Finally, the response to the 2022–2023 energy crisis showed that windfall taxation of excess profits in the fossil fuel sector can provide an additional source of funding to absorb geopolitical shocks and protect vulnerable households.

Increasing household resilience

Rather than subsidising fossil fuel consumption, these resources could be redirected towards long-term investments in household energy resilience, including:

EUR 195 million annually through full utilisation of the Environmental Fund;

EUR 228 million annually through full utilisation of the Modernisation Fund, assuming stable ETS prices;

EUR 178 million through the abolition of indirect fossil-fuel subsidies and implementation of other recommendations from the Value for Money Division;

EUR 385 million through the removal of fossil-fuel, electricity, and district-heating price caps; and

additional income from a properly calibrated windfall tax.

Collectively, this totals an enormous EUR 986 million annually, in addition to potentially hundreds of millions from windfall taxation. This is almost four times more (386%) than Slovakia’s annual allocation under the Social Climate Fund between 2028 and 2032.

In principle, ETS revenues – combined with the measures listed above – could significantly strengthen support for households, provided the Slovak government reconsiders its current ETS position. These massive annual revenues could be used to finance long-term energy efficiency and renewable energy solutions for 141,280 households. For example:

Up to 61,280 households could receive EUR 10 000 each under the Renovate House programme to replace windows and doors, and insulate roofs or ceilings;

A further 40,000 households could receive a EUR 4 380 subsidy for heat pumps through the Green to Households programme, reduce long-term heating costs;

Around 20,000 vulnerable households could receive a EUR 3 600 subsidy for solar thermal collectors under the Green Solidarity programme, cutting their hot water expenses;

And finally, 20,000 energy-poor households could receive a EUR 6 300 subsidy for rooftop solar photovoltaic systems under Green Solidarity, reducing their electricity bills.

The above examples illustrate the scale of support that could be mobilised for households if Slovakia pursued a more ambitious and socially targeted climate and energy policy. A comprehensiveenergy poverty strategy would also need to include measures related to sustainable and affordable housing, alongside other structural social and energy reforms.

The EBRD’s new gender strategy risks falling short at a critical moment

Today, only 4% of women live in countries close to achieving full legal equality. No economy provides equal economic opportunities, and nearly a quarter of countries have experienced a backlash against gender equality. These are not just trends, but early warning signs. They lead to shrinking civic space, weakened democratic institutions, poor economic governance, and an increasing risk to those the EBRD aims to support. Unless the EBRD explicitly recognises and addresses these dynamics, it risks investing in environments where its own objectives are undermined.

The draft Strategy rightly acknowledges that women and other underserved groups continue to face structural barriers when it comes to accessing jobs, finance, infrastructure and public services. More and more countries are introducing laws targeting the reproductive rights of women or the rights of LGBTIQ+ people. However, recognition alone is no longer enough. If the EBRD is serious about an inclusive economic transition, its new Strategy must move beyond business as usual and confront the political and economic realities shaping its operations through stronger, more ambitious and more targeted actions.

A test of the EBRD’s mandate

The EBRD is not just a development bank. It has a mandate to support democracy and pluralism. Gender equality and inclusion are not optional extras, but core to its mission. Yet the draft strategy still primarily frames gender equality as an economic issue rather than a matter of rights, governance and democratic resilience.

While the EBRD may see this as a more convincing approach to stakeholders, the current backlash against gender equality and inclusion in many countries, including those in Europe and Central Asia, calls this approach into question. If applied in isolation, this approach limits the EBRD’s ability to respond to realities on the ground, where economic exclusion is often reinforced by legal discrimination and political repression.

The Strategy highlights the importance of policy dialogue in shaping lasting reform. However, such engagement is often confined to politically convenient areas that neatly align with national priorities. That is not enough. In many EBRD countries of operation, national laws and policies are increasingly being used to restrict gender equality and the inclusion of LGBTIQ+ people. In other regions, harmful practices such as child marriage and female genital mutilation persist, and consensual same-sex relations are criminalised in multiple countries.

If policy dialogue avoids these realities, it risks becoming merely performative. To be effective, policy dialogue must engage precisely where the barriers are greatest, even when doing so is politically sensitive. After all, policy dialogue should be driven not by what is easiest, but by what is most necessary.

A worrying decline in ambition

Equally concerning is the proposed reduction in ambition. The Strategy sets a target of 40% of projects promoting gender equality, which is lower than the EBRD’s recent performance. Meanwhile, the proposed impact indicators for human capital suggest no significant increase in skills development or workplace reforms. More significantly, the Strategy lacks the tools required to respond when commitments are weakened during implementation, whether due to political pressure, client resistance or shrinking civic space.

At a time when opposition to gender equality and inclusion is intensifying, standing still effectively means falling behind. Instead, the EBRD should raise its ambitions, targeting at least half of its portfolio to meaningfully advance gender equality, while ensuring that commitments deepen alongside growing investment volumes.

Inclusion must be explicit

The Strategy frequently refers to ‘underserved groups’ without clearly defining them. This ambiguity matters. Without explicit recognition, groups facing the most severe discrimination – particularly LGBTIQ+ people, ethnic minorities, women living in rural areas, and groups experiencing intersecting inequalities – risk being overlooked in practice. Clear definitions are essential to ensure that interventions reach those most affected by exclusion.

Experience shows that what is not named is often not measured, and what is not measured is rarely prioritised. If the EBRD is committed to inclusion, it must clearly identify its target groups and track outcomes through precise, disaggregated indicators.

Without robust monitoring that captures systemic changes such as gender pay gaps, leadership representation, the inclusion of LGBTIQ+ people, and rates of gender-based violence and harassment – rather than just project outputs – it will be difficult to assess whether investments are transforming inequalities or merely operating within them.

A critical turning point

The EBRD’s new Strategy comes at a pivotal moment. Around the world, the fight for equality is facing growing opposition from increasingly organised forces. The EBRD has an opportunity to take the lead, but only if it strengthens its approach.

First, the EBRD must recognise the backlash against gender equality and LGBTIQ+ inclusion as a material risk, integrating it into its country strategies and project design.

Second, the EBRD should raise – not lower – its ambitions by ensuring that at least 50% of its investments actively promote gender equality.

Third, the EBRD must clearly define which vulnerable groups it seeks to support, ensuring that dedicated programmes, effective tools, including policy dialogue, and robust impact monitoring are in place to reach those most at risk.

Finally, the EBRD must treat gender equality and inclusion as central to its democracy mandate, not just as drivers of economic growth.

The question is not whether the EBRD recognises the challenges; it clearly does. The question is whether it is willing to match this recognition with the ambition, clarity and political courage required to address these challenges. If it does, the Strategy could become a meaningful tool for advancing inclusive development. If not, it risks becoming just another well-intentioned document that fails to deliver when it matters most.

More buses, but is the system better? Evaluating Bishkek’s public transport network

Over the past few years, the public transport fleet in Bishkek – Kyrgyzstan’s capital city – has changed visibly. In a city where privately operated minibuses, known as marshrutkas, dominated for years, new gas-powered buses and electric buses are now in service.

Today, the municipal fleet includes around 1,600 vehicles. Of these, 424 were purchased through grants and loans provided by international financial institutions, including the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), and Germany’s development bank (KfW).

At first glance, this appears to be a clear move towards more sustainable urban mobility. However, an analysis of Bishkek’s public transport system, conducted by local researchers with support from CEE Bankwatch Network, suggests that fleet renewal alone has not made public transport genuinely attractive or efficient.

Modernisation, but to what end?

According to an official survey commissioned by the Bishkek mayor’s office as part of the city’s 2050 General Plan, only 38% of residents selected public transport as their primary mode of travel, with 41% of residents travelling by car. The rest walk or use personal mobility devices. These figures point to a deeper structural issue: the reform has focused primarily on replacing vehicles, while the system itself remains in need of fundamental improvement.

The analysis identified several key barriers that may prevent residents from shifting from cars to public transport. First, only 18% of the fleet can be described as fully comfortable, inclusive, safe and environmentally friendly. Many buses lack air conditioning, not all interiors are fully inclusive, and part of the fleet still fails to meet modern environmental standards.

Second, pedestrian access to stops remains limited. GIS analysis shows that only 25% of Bishkek’s built-up area lies within a 500-metre walking distance of existing stops. This means that many residents must already incur additional time and effort costs at the very first stage of their trip, making public transport less competitive compared to cars.

Third, the city still lacks a connected bus priority system. Dedicated bus lanes cover only 2% of the total route network length. Passengers lose time in traffic congestion alongside motorists. Because of traffic jams, service intervals are disrupted, travel times increase, and travel itself remains unpredictable.

International practice in public transport development recommends three types of measures known as the ‘avoid–shift–improve’ approach:

avoid – reduce the need for trips through better urban planning;

shift – switch demand to more sustainable modes of transport;

improve – upgrade vehicles and technologies.

However, the changes in Bishkek primarily focus on the third measure: fleet renewal. Yet even the most modern ‘green’ buses do not, on their own, solve passengers’ problems, shorten travel times, or make public transport a more attractive option.

Beyond new buses

For public transport in Bishkek to truly become more convenient and attractive, the city must adopt a more comprehensive approach, including:

developing a polycentric urban structure to reduce the need for long-distance travel;

optimising excessively long routes and introducing a free transfer system;

increasing pedestrian access to stops, particularly in residential districts and peripheral areas;

creating a connected network of dedicated bus lanes; and

integrating buses with rail, cycling, and pedestrian infrastructure as well as car use.

In summary, while investment in greener and more modern rolling stock is necessary, it remains insufficient. Unless the city implements these changes, it will be left with a system that is modern in form, yet fundamentally ineffective – one that ultimately fails to compete with the speed, convenience and reliability of the car.

Power to the people: How distribution grid improvements can speed up energy transformation in the Western Balkans

The transformation of the energy sector in the Western Balkans is progressing at different speeds. Much of the system still relies on outdated fossil fuel plants and large-scale hydropower production. However, all countries in the region have started to see an influx of intermittent renewable energy. While there are exceptions, this new capacity generally consists of utility-scaleinstallations directly connected to the transmission or distribution grids, functioning as additions to the existing centralised system. 

Yet the system can only absorb so much intermittent production at present. Transmission system operators in Western Balkan countries typically estimate that around a third of grid connection requests can be accommodated without compromising the stability or security of supply. They also identify the connection of multiple utility-scale photovoltaic plants to the distribution grid as a cause of excessive voltage variations and increased power losses.

While power transmission systems have their own issues to resolve, investment in the distribution grid needed to speed up the transition is lagging behind. Most of the infrastructure was built in the last century and has hardly been upgraded, despite legally binding obligations. 

Distribution grid losses are significantly higher in most Western Balkan countries than in EU Member States. Bosnia and Herzegovina is the only country in the region with losses below 10%. However, losses in Montenegro, North Macedonia and Serbia are around 11 to 14%, in Albania almost 20%, and in Kosovo above 20%. Part of the issue lies with the non-technical lossescaused by outdated energy consumption metering and billing systems. 

The current situation does not allow for sufficient capacity to enable more prosumers and energy communities to connect. To achieve this, the grid needs to be flexible and capable enough to redistribute electricity in real time from many small producers to wherever it is needed most at that moment. 

Enabling households and small and medium-sized enterprises to actively participate in the energy system by generation as well as consuming electricity is a necessary step in the energy transformation. This will motivate them to invest more in energy efficiency and to proactively contribute to policy development. 

The benefits will be shared by everyone. The more prosumers and energy communities that join the system, the lower electricity prices will be. Lower losses and modern metering and billing systems will benefit the system operators. And finally, more stable national systems will lead to stability in the regional and European electricity markets. 

This is why financiers, such as development banks and the EU, must prioritise investment not only in electricity generation, but also in improving the distribution grid. This is the only way the system can move away from large-scale, climate-damaging, centralised power plants and truly embrace an energy-efficient and renewable future for all. 

Community energy gathers momentum in Estonia

At a time when the energy crisis, climate goals, and security issues are becoming increasingly intertwined, community energy presents a strategic yet significantly underutilised opportunity for central and eastern Europe to build a more resilient energy system. As the EU transitions to clean energy, community-based energy solutions are becoming an increasingly important grassroots driver, one that links climate goals with local development and social cohesion.

Estonia’s Energy Sector Development Plan (ENMAK) adopted earlier this year, has taken the first steps towards mapping the potential obstacles and opportunities for community energy at the national level. Unlike in many other EU Member States, the development of community energy in Estonia has yet to become a separate strategic goal, largely due to a lack of state support.

Supporting community energy initiatives and promoting their wider adoption would bolster the functioning of Estonia’s local energy sector, the transition to renewable energy, and its overall resilience. At the local level, this strategy would in turn help communities cope with a variety of challenges, from ensuring energy security to creating new opportunities in areas like transport and the energy supply of public buildings.

What motivates Estonian communities to generate energy together?

Despite the scarcity of subsidies, a few trailblazing communities in Estonia have taken the initiative to produce energy locally. Energy cooperatives are today rarely formed out of convenience, but out of necessity. When an existing solution no longer works or becomes too expensive, alternatives have to be found. The effects of high electricity prices, an unreliable heat supply, or poor infrastructure – all of which are keenly felt during a harsh winter – tend to motivate communities to come together and act.

The experience of Seto Aiad, a gardening cooperative in the village of Obinitsa in the southernmost part of Estonia, is an example of how economic pressure can provide the impetus for action. Faced with high electricity costs for keeping their cold storage facility running during the summer, the members were left with no other option but to establish an energy cooperative. With an eye on long-term sustainability, this local initiative is taking a far more climate-friendly approach than simply relying on transporting oil shale energy, much of which is lost on its journey from the other end of the country in Ida-Virumaa, the country’s just transition region.

Even within Ida-Virumaa itself, which has been mass-supplying electricity to households for the past century, the transition to community energy has begun. In the village of Savala, the community is now working together to renovate six apartment buildings, with the logical next step of generating the electricity consumed on-site.

However, these pioneers often face significant challenges. There are no guarantees, and collaborative investment in the community and local life has yet to sufficiently take root in wider society. Leaders of the Kääpa village energy cooperative in Jõgeva County in the east of the country have found that, even when the community does show interest and the idea of shared energy seems exciting and sensible, people become much more cautious during the implementation phase.

And this is precisely why success stories that can be later replicated in other villages and regions are so crucial, as they build confidence and reduce the fear of getting started. Community energy has the potential to play a significant role not only in gardening and consumer cooperatives, but also in other forms of collective action where networks of cooperation and trust already exist. Where people are accustomed to making decisions together and sharing responsibility, energy cooperation is a natural next step.

Looking to the future

Beyond inspiration and determination, the wider adoption of energy cooperatives requires systemic support. Currently, the development of community energy is being held back by a lack of awareness, limited infrastructure and financial complexity. Until Estonia introduces the targeted subsidies that are widely available elsewhere in Europe, energy cooperatives will continue to have to make a large initial investment using their own funds, which rules out many potential participants from the outset.

Another major bottleneck is Estonia’s electricity grid, historically designed for one-way electricity transmission of power from large producers to consumers. But this structure does not sufficiently support distributed and community-based production or allow for flexible electricity distribution. As a result, current initiatives often have to focus on ensuring that as much of the energy produced as possible is consumed locally.

Community energy is more than just a niche solution in Estonia – it’s a transformative opportunity to shape a fairer, cleaner and more resilient energy system. To support this shift, steps need to be taken on multiple fronts. At the national level, the government can send a clear signal by making community energy a strategic priority, creating simple and understandable support measures, and adapting the grid and regulatory framework to better suit distributed electricity generation. Even modest, targeted start-up grants or financial guarantees would help cooperatives overcome the most challenging initial phase.

Local governments can also take the lead by mapping regional opportunities, launching pilot projects, and bringing together interested parties, including residents and businesses. At the community level, the most important thing is to start a conversation about how shared needs can be met collectively while keeping an open mind. From this point of strength, communities can seek out partners and expert advice. As the above success stories show, growth only occurs when people dare to learn and experiment together.

True electricity market integration requires environmental compliance

Before the EU’s CBAM definitive regime began on 1 January this year, many stakeholders questioned whether CBAM should be delayed in the electricity sector. Some even questioned whether electricity should even remain included at all. After all, the Energy Community Treaty has for 20 years promoted integration of the Western Balkans’ energy markets with those of the EU, rather than adding new barriers.

Although CBAM is likely impacting this process to some extent – it’s too early to tell how much – much of the debate currently focuses on its negative impacts, without acknowledging the positive potential of CBAM to drive forward alignment with EU energy and climate policy. The right of Western Balkan renewable energy producers to export electricity to the EU unhindered is also often taken as a given in the debate.

Our new position paper, signed by 63 civil society organisations, therefore seeks to highlight another side of the story: that electricity market integration is desirable, but it must go hand in hand with environmental and climate compliance in the electricity sector.

Not playing by the rules

The Western Balkans’ deadly coal power plants are notorious, but it’s not merely a question of fossil fuels versus renewables, but also a wider lack of environmental governance. Despite being a biodiversity hotspot, the countries fail to properly protect their valuable natural areas, and to properly apply basic EU safeguards like strategic and project-level environmental impact assessments. Appropriate assessments under the Habitats Directive and water impact tests under the Water Framework Directive are barely applied at all.

Western Balkan governments want to participate in the EU energy markets without playing by the rules, and this isn’t fair to their people, nature or others who do play by the rules.

The Energy Community Treaty was designed to avoid this situation. And while it has contributed significantly to moving forward the Western Balkan countries’ legislative alignment with the EU, its environmental safeguards are lagging behind. It also lacks financial penalties, allowing its Contracting Parties to procrastinate for years on compliance.

Finally, deadlines with consequences

CBAM has therefore been a breath of fresh air, finally providing clear deadlines for the countries to either face its consequences or gain exemptions for electricity by applying EU energy and climate law, including emissions trading schemes equivalent to that of the EU by 1 January 2030.

Progress has been slow, but Serbia, Montenegro and Moldova have transposed the legislation needed for electricity market coupling – the first precondition for exemption from CBAM. Montenegro has also recently committed to carbon neutrality by 2050.

The EU must therefore not give up on CBAM in electricity, but rather use it to the maximum to help move forward compliance with EU energy and climate policy. More broadly, the European Commission must make sure the exporting countries finally comply with all the relevant EU rules, including environmental safeguards.

The way forward

Western Balkan governments may not realise it yet, but the Commission would be doing both the EU and the region a favour by applying the CBAM exemption criteria and reductions in CBAM charges strictly. Insisting that the countries meaningfully advance on decarbonisation in order to gain CBAM exemptions for electricity will help to make up for the lack of enforcement mechanisms in the Energy Community Treaty, and introducing carbon pricing would help them mobilise resources to fund a just energy transition.

More broadly, the Commission also needs to apply joined-up thinking. Access to EU funds for energy must be conditioned on enforcement of the Energy Community Treaty, and full transposition and enforcement of nature and water protection safeguards in the countries, to improve renewable energy sustainability.

The EU also needs to avoid creating uncertainty about its own policy directions. Recent calls by Italy’s government and others to suspend the ETS are totally irresponsible. They largely result from countries’ own misguided investments in gas, and would increase the EU’s dependence on imported fossil fuels, and vulnerability to price shocks like the current one.

Although the Western Balkan countries need to mobilise their own resources for just transition via carbon pricing, the EU also needs to show it is serious about supporting a just transition in the region by earmarking financial support for carbon-intensive regions in the next EU long-term budget. Only this way can we ensure a level playing field in the electricity sector and a more socially and environmentally sustainable energy transition.