Researchers from Kozminski University: Serhii Druchyn, Dr Adam Juszczak i Dr Jakub Rybacki examine how fossil fuel costs in power generation and carbon pricing under the EU ETS translate into consumer prices across EU countries over 2015–2023. The message is measured: retail energy inflation reacts most strongly, food prices respond moderately, while core inflation shows no typical second round effects. At the same time, the crisis increased the pass-through from gas prices and EU ETS costs to retail energy prices, which makes “stable, linear growth” forecasts less reliable in periods of stress.
When prices rise, it is tempting to look for one culprit. The energy crisis reminded Europe of a more direct mechanism: inflation driven by energy costs. The authors frame this through two lenses. “Fossilflation” captures inflation pressures rooted in higher fossil fuel prices. “Greenflation” reflects the costs of the transition, including the price put on emissions. In calm markets, these forces can be discussed separately. In turbulent markets, they interact, because energy becomes the channel through which households and firms feel geopolitics and climate policy at the same time.
The study at a glance
The analysis covers EU countries from 2015 to 2023 and applies a panel vector autoregressive model to trace how cost shocks transmit into different components of inflation. A key strength is that the authors do not treat inflation as a single aggregate. They separate retail energy inflation, food inflation, and core inflation.
They also move beyond headline commodity prices. Instead, they estimate “effective” fuel costs per 1 MWh of electricity generation, reflecting differences in national energy mixes. That matters because the same increase in gas or oil prices is not the same shock for every economy. It depends on how electricity is produced and how exposed a country is to fossil inputs and emissions costs.
Gas and oil: the fastest route to household bills
The clearest results appear in retail energy inflation. A 10% increase in the effective price of natural gas used in power generation is estimated to raise retail energy inflation by 0.55 percentage points. For crude oil, the estimated impact is around 0.75 percentage points. In simple terms, when the key energy commodities become more expensive, retail energy prices are where the shock shows first and most visibly.
The article adds an important post-2022 nuance. The crisis was not only a price spike, it also appears to have altered the transmission mechanism. For natural gas, the authors find that pass-through increased notably after the Covid-19 period and during the energy crisis. In the 2015–2020 sample, the estimate is closer to 0.4 percentage points, suggesting a weaker transmission in more stable conditions. This is a practical warning: relationships observed in a calmer decade may not hold when markets are stressed.
Oil behaves differently. The estimated effect remains relatively stable over time, with the pre-crisis period showing a slightly higher point estimate (around 0.85 percentage points) but with wide confidence bands. The implication is that the crisis changed some channels more than others, and gas stands out as the more crisis-sensitive driver.
EU ETS after the crisis: carbon no longer stays in the background
The central climate-policy result concerns carbon pricing in the EU ETS. The authors estimate that a 10% increase in EU ETS costs raises retail energy inflation by around 0.6 percentage points, and they show that this impact has increased substantially compared with the 2015–2020 period, when the parameter was closer to 0.1 percentage points.
This shift carries weight beyond the headline number. Many models implicitly assume gradual carbon price increases and limited consumer price effects. The article suggests that under crisis conditions the pass-through can rise, and with it the risk that standard assumptions understate near-term price sensitivity. The authors explicitly flag high parameter volatility in the face of shocks as a concern for forward-looking projections, especially as ETS expands into additional sectors.
Food reacts, core inflation holds
Food prices do respond, but the effect is noticeably smaller than for retail energy. The authors identify a moderate impact, with a similar shock raising food prices by roughly 0.13 to 0.18 percentage points.
What is just as important is what the data does not show. The article finds no second-round effects in core inflation, meaning the energy shock does not appear to cascade into a persistent, broad-based inflation process once energy and food are excluded. The impact of carbon pricing on industrial goods and services is also found to be limited. Together, these results push back against the claim that any rise in energy costs or carbon prices must mechanically translate into lasting economy-wide inflation. It should be noted, however, that the results of the study only concern the current functioning of the system – when the requirements for transport and building services are extended (ETS2 reform for 2028), the transmission is likely to change.
Where the leverage sits
For economic policy, the takeaway is pragmatic. If the strongest channel runs through retail energy prices, then decisions on energy markets, tariffs, shielding mechanisms, and the timing of transition-related measures can meaningfully influence the short-term inflation path. At the same time, the article is a reminder that price shields can dampen symptoms without changing the underlying cost mechanics that resurface when markets are disrupted.
For business, the message is equally practical. Managing energy exposure is no longer a concern reserved for traditionally energy-intensive sectors. In economies that are more sensitive to fossil inputs and EU ETS costs, energy risk becomes part of broader pricing, procurement, and financial strategy. In this setting, the energy transition is not only an ESG narrative. It becomes a variable that can affect margins and consumer demand through inflation dynamics.
Inflation has channels, and the crisis widened some of them
The article by Serhii Druchyn, Adam Juszczak, and Jakub Rybacki is valuable because it treats inflation as a system of transmission channels rather than a single headline figure. The story is coherent: fossil fuels and carbon pricing translate most strongly into retail energy prices, food reacts moderately, and core inflation remains comparatively resilient. At the same time, the energy crisis strengthened some linkages, especially for gas and EU ETS, which should temper confidence in long-run assumptions built on pre-crisis stability. In Europe where the climate transition increasingly intersects with geopolitics, that caution is not academic. It is essential. *** Based on the article:
