EU climate action through an energy poverty lens

Abstract

Carbon pricing can steer energy choices towards low-carbon fuels and foster energy conservation efforts. Simultaneously, higher fossil fuel prices may exacerbate energy poverty. A just portfolio of climate policies therefore requires a balanced instrument mix to jointly combat climate change and energy poverty. We review recent policy developments in the EU aimed at addressing energy poverty and the social implications of the climate neutrality transition. We then operationalise an affordability-based definition of energy poverty and numerically illustrate that recent EU climate policy proposals risk raising the number of energy poor when not accompanied with complementary measures, while alternative climate policy designs could lift more than 1 million households out of energy poverty through income-targeted revenue recycling schemes. While these schemes have low informational requirements and appear sufficient to avoid exacerbating energy poverty, the findings suggest that more tailored interventions are needed. Finally, we discuss how insights from behavioural economics and energy justice can help shape optimal policy packages and processes.

The effects of higher gas prices on the EU economy: a computable general equilibrium modelling perspective

“…Importantly, this welfare loss for the bottom quintile due to more stringent climate policy can be fully offset with recycling the carbon revenue back to households (Weitzel et al 2023); such direct transfers or other measures to decrease household's direct emissions and hence their exposure to a carbon price are foreseen under the Social Climate Fund. Our findings here would also imply that without any policy measures such as (targeted) transfers and social tariffs, higher energy prices could increase the number of people in energy poverty and therefore also has important implications for policy interventions (Vandyck et al 2023). Consequently, many countries implemented emergency measures to shield households from higher energy prices (Fulvimari et al 2023).…”