Distributional and climate implications of policy responses to the energy crisis: Lessons from the UK

Thiemo Fetzer, Ludovica Gazze and Menna Bishop
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Ludovica Gazze: University of Warwick, Department of Economics & CAGE
Menna Bishop: University of Warwick

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: Which households will be most affected by the energy price shock? How large are the energy, financial, and environmental benefits of improved energy efficiency of the British residential building stock? How do policies or interventions in price setting in energy markets affect these incentives? We develop a measurement and ex-ante modelling approach using granular property-level micro data representing around 50% of the English and Welsh building stock. This allows us to quantify the likely impact of recent energy price shocks on energy bills and how these bills would look like if energy savings measures were implemented. We find, on average, that the energy price shock acts as a form of progressive taxation hitting better-off regions more than poorer ones, in absolute terms. We estimate that on aggregate, 30% of energy consumption could be saved if buildings were upgraded to their highest energy efficiency standard. At market prices, these savings range between GBP 10 to 20 billion pounds per year with the highest energy savings largely concentrated in the wealthiest parts of the UK. However, current policies weaken incentives for households to invest in energy efficiency upgrades. Current policies, such as the energy price cap, appears to be very regressive. Alternative, more targeted policies, are cheaper, easily implementable and could align incentives better.

Keywords: Energy Crisis; Economic Hardship; Populism JEL Codes: (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://warwick.ac.uk/fac/soc/economics/research/c ... tions/wp644.2022.pdf

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Working Paper: Distributional and climate implications of policy responses to the energy crisis: Lessons from the UK (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:644

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