Energy Support for Firms in Europe: Best Practice Considerations and Recent Experience

IMF Working Papers, September 22, 2023

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Canonical URL: Energy Support for Firms in Europe: Best Practice Considerations and Recent Experience

The surge in energy prices due to Russia’s February 2022 invasion of Ukraine significantly increased costs for European firms, prompting governments to introduce a range of support schemes.
Although energy prices had eased by early 2023, uncertainty around prices remains unusually large.
The paper examines the case for government intervention and identifies best practices to:
- improve the design of existing energy support schemes;
- facilitate exit from those schemes; and
- prepare policymakers for a downside scenario in which energy prices flare up again.

Support should be:
- limited in size;
- strictly temporary in nature;
- narrowly targeted; and
- accompanied by strong safeguards and conditionality.
Preserve price signals as much as possible to encourage energy conservation.
The paper reviews recent support schemes introduced by European governments in light of the identified best practice considerations.

Limit the size of support to reduce fiscal costs and distortions.
Ensure strict temporariness to avoid long-term market distortions.
Target support narrowly to firms most affected to preserve incentives for efficient energy use.
Implement strong safeguards and conditionality to protect public resources and limit misuse.
Preserve price signals where feasible to encourage energy conservation and efficient resource allocation.
Prepare contingency plans for a downside scenario of renewed energy price spikes.

Focus: case for government intervention in firm-level energy support and best-practice design considerations.
Analytical goals:
- Improve existing scheme design.
- Facilitate orderly exit from schemes.
- Prepare for potential future energy price flare-ups.
The paper also conducts a review of recent support schemes in Europe against the identified best-practice considerations.