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© 2022 International Monetary Fund
WP/22/262
IMF Working Paper
European Department
Targeted, Implementable, and Practical Energy Relief Measures for Households in Europe
Prepared by Nicolas Arregui, Oya Celasun, Dora Iakova, Aiko Mineshima, Victor Mylonas, Frederik Toscani, Yu Ching Wong, Li Zeng, and Jing Zhou
Authorized for distribution by Oya Celasun and Dora Iakova
December 2022
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.
ABSTRACT: 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 crosscountry 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 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.
RECOMMENDED CITATION: Arregui, N., Celasun, O., Iakova, D., Mineshima, A., Mylonas, V., Toscani, F., Wong, Y., Zeng, L., & Zhou, J. (2022). Targeted, Implementable, and Practical Energy Relief Measures for Households in Europe. IMF Working Papers, 2022/262
| JEL Classification Numbers: | H22, H23, Q41, Q48, Q58 |
| Keywords: | energy prices; price pass-through; household incidence; distributional analysis; social safety nets |
| Author’s E-Mail Address: | NArregui@imf.org; OCelasun@imf.org; DIakova@imf.org; AMineshima@imf.org; VMylonas@worldbank.org; FToscani@imf.org; YWong@imf.org; LZeng@imf.org; JZhou@imf.org |
| JEL Classification Numbers: | H22, H23, Q41, Q48, Q58 |
| Keywords: | energy prices; price pass-through; household incidence; distributional analysis; social safety nets |
| Author’s E-Mail Address: | NArregui@imf.org; OCelasun@imf.org; DIakova@imf.org; AMineshima@imf.org; VMylonas@worldbank.org; FToscani@imf.org; YWong@imf.org; LZeng@imf.org; JZhou@imf.org |
Title Page
WORKING PAPERS
Targeted, Implementable, and Practical Energy Relief Measures for Households in Europe
Prepared by Nicolas Arregui, Oya Celasun, Dora Iakova, Aiko Mineshima, Victor Mylonas, Frederik Toscani, Yu Ching Wong, Li Zeng, and Jing Zhou1
Contents
1. Overview
2. The European Energy Price Shock: A Brief Recap
3. How Should Governments Help Households Cope with Surging Energy Costs? Principles and Practical Recommendations
4. How are Countries Responding to the Energy Crisis?
5. Conclusion
FIGURES
1. Wholesale Energy Prices Error! Bookmark not defined
2. Increases in Energy Prices and the Cost of Living
3. Increases in the Cost of Living and Energy Relief Packages
4. Estimated vs. Announced Fiscal Costs and Fiscal Space
ANNEXES
I. Consumer Energy Price Inflation Forecast
II. Overview of Measures Adopted by Countries
TABLES
A2.1. Energy Cost Support Measures Adopted by European Countries for Households
A2.2. Fiscal Costs and Household Support Measures in 2022 and 2023
A2.3. Measures Implemented by European Countries to Cushion the Impact of High Energy Prices on Households
References
The authors would like to thank Rohan Srinivas for excellent research assistance, Marizielle Evio for expert editorial assistance, and Paulo Medas, Andrea Pescatori, and Martin Stuermer for very useful discussions.