Targeted, Implementable, and Practical Energy Relief Measures for Households in Europe

By Nicolas Arregui, Oya Celasun, Dora M Iakova, Aiko Mineshima, Victor Mylonas, Frederik G Toscani, Yu Ching Wong, Li Zeng, Jing Zhou

December 16, 2022

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Nicolas Arregui, Oya Celasun, Dora M Iakova, Aiko Mineshima, Victor Mylonas, Frederik G Toscani, Yu Ching Wong, Li Zeng, and Jing Zhou. Targeted, Implementable, and Practical Energy Relief Measures for Households in Europe, (USA: International Monetary Fund, 2022) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The recommended way of helping households during the ongoing European energy crisis is to allow price signals to operate freely while providing targeted compensation to the vulnerable. In practice, however, institutional, political, and technical constraints have led many European governments to adopt broad, price-suppressing measures, which impede the adjustment in demand, have high fiscal costs, and widen cross-country gaps in prices. This paper focuses on easy-to-implement, second-best policies. Bonuses or rebates on energy bills (that are not linked to the current volume of consumption) or block tariffs are simple options which would improve on the current policy design in many countries. To avoid stoking inflation, fiscal policy should not add to aggregate demand, so relief for energy bills should be targeted and coupled with offsetting fiscal measures. One option is to reclaim the relief from the better-off through income taxation, which would also make support more progressive.

Subject: Consumption, Economic sectors, Energy prices, Energy pricing, Expenditure, Income, National accounts, Natural gas sector, Prices

Keywords: Consumption, Distributional analysis, Energy cost support measure, Energy prices, Energy pricing, EU government, Europe, Household incidence, I. consumer energy price inflation, Income, Natural gas sector, Price pass-through, Price signal, Price-suppressing measure, Social safety nets

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/262
Stock No:

WPIEA2022262
ISBN:

9798400227400
ISSN:

1018-5941

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