Reuters
ReutersLONDON (Reuters Breakingviews) - Europe’s leaders have the right intentions to tackle soaring energy bills – and the wrong remedies. After gas prices quadrupled since last year, European Union governments had committed https://voxeu.org/article/targeted-income-support-mitigate-impact-high-energy-prices 0.6% of the bloc’s GDP, as of late April, to help their economies cushion the blow. That makes sense. Yet the way they do it enriches Russia and compromises an EU pledge to cut 2030 greenhouse gas emissions by 55% compared to their 1990 level.
The smart way to intervene is to leave prices untouched, and use taxpayer resources to help poorer citizens who are least able to cope. That is not what’s happening. According https://voxeu.org/article/targeted-income-support-mitigate-impact-high-energy-prices to a paper by European Commission economists, most of the measures announced thus far aim to reduce the price households and businesses pay by cutting things like fuel taxes. UK finance minister Rishi Sunak, meanwhile, is giving all UK citizens a 400 pound cut to their power bills.
One doesn’t have to be a free-market zealot to see the problem. Europe wants households and businesses to use less Russian gas in particular, and cut consumption in general to fight climate change. Rocketing prices offer an ideal opportunity to achieve those goals. Keeping prices artificially low, in contrast, helps maintain the flow of revenue Europe keeps sending https://crea.shinyapps.io/russia_counter to Moscow to the tune of $20 billion a month.
There are two better alternatives. Instead of a price-focused strategy that hikes long-term household fossil fuel consumption by 11%, the commission economists calculate that targeted income support for lower-income households would limit hikes to both emissions and imports.
But the real opportunity, as flagged https://www.ft.com/content/078e2d50-f161-4257-8364-c80b5bfecc7f by the International Energy Agency on Wednesday, is to target energy efficiency. Turning down thermostats by an extra 2 degrees Celsius, coupled with a cut of industrial gas usage by 10%, would knock 30 billion cubic metres or 20% off Europe’s Russian gas requirements, according https://www.energy-transitions.org/publications/building-energy-security to the Energy Transitions Commission. True, this could also cost some 2.2% of GDP. But targeted income support for the poorest would limit the hit.
This would be economically and logically superior to the continued fattening of Russian President Vladimir Putin’s wallet. Furthermore, the fight to limit global warming to 1.5 degrees Celsius critically hinges on cutting energy demand. Maybe European governments should now start preparing the mother of all public information campaigns.
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CONTEXT NEWS
The International Energy Agency has warned that Europe is at risk of energy rationing this winter, especially if cold weather coincides with a Chinese economic rebound, the Financial Times reported on June 8.
IEA Executive Director Fatih Birol told the FT that rationing could be introduced for industrial gas users and others if steps were not taken quickly to improve efficiency.
Birol said governments needed to drive down energy demand via efficiency gains, but noted that gas shortages would be less severe “if the Chinese economy doesn’t perform at the usual pace”.
(Editing by Pierre Briancon, Streisand Neto and Oliver Taslic)
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