Europe needs fiscal and energy solidarity

Think tank: Centre for European Reform

Author(s): Elisabetta Cornago; John Springford

March 14, 2023

This report from UK think tank the Centre for European Reform looks at how European countries – and the EU – have responded to high energy prices.

A new Centre for European Reform policy brief, ‘Europe needs fiscal and energy solidarity’, evaluates how European countries – and the EU – have responded to high energy prices. It assesses the investment needed in alternatives to Russian fossil fuels, and whether the EU should finance more of the energy transition collectively. According to our analysis, European governments have spent four times more on energy price controls, rather than giving households cash transfers. Cash transfers are a better tool than price controls for conserving energy, because households could turn down thermostats and spend the money on other things. Only a third of energy subsidies have been targeted on poorer and other vulnerable households – the rest has gone to everyone unconditionally. That unconditional support should be phased out now that energy prices have fallen from their autumn highs. But according to gas futures markets, they’re likely to be higher than the pre-war average for several years. The European economy needs to adjust to those higher prices and switch rapidly from gas, oil and coal to other energy sources. Governments should switch towards higher investment in buildings insulation, heat pumps, renewables and upgrading electric grids. According to our analysis, the increase in public funding for energy efficiency investment has been very small since Russia’s invasion of Ukraine, especially when compared to the spending on energy subsidies.