## Targeted, Implementable, and Practical Energy Relief Measures for Households in Europe

_IMF Working Papers, December 16, 2022_

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## Bibliographic details
- Authors: Nicolas Arregui, Oya Celasun, Dora M Iakova, Aiko Mineshima, Victor Mylonas, Frederik G Toscani, Yu Ching Wong, Li Zeng, Jing Zhou
- Published: December 16, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400227400.001

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### Summary and framing
- Recommended approach: allow price signals to operate freely while providing targeted compensation to the vulnerable.
- Observed practice: institutional, political, and technical constraints have led many European governments to adopt broad, price-suppressing measures.
- Consequences of broad price-suppressing measures:
  - impede the adjustment in demand,
  - have high fiscal costs,
  - widen cross-country gaps in prices.
- Focus of the paper: easy-to-implement, second-best policies.

### Key findings
- Simple, implementable options that improve on current policy design include:
  - bonuses or rebates on energy bills that are not linked to the current volume of consumption,
  - block tariffs.
- To avoid stoking inflation, fiscal policy should not add to aggregate demand; relief for energy bills should be targeted and coupled with offsetting fiscal measures.
- One offsetting option presented: reclaim the relief from the better-off through income taxation, which would also make support more progressive.

### Policy recommendations (practical implications)
- Prioritize targeted compensation to vulnerable households rather than broad, price-suppressing interventions.
- Implement bonuses or rebates on energy bills that are independent of current consumption volume as a simple, second-best option.
- Consider block tariffs as another straightforward design that can improve outcomes relative to broad price caps or subsidies.
- Pair energy-bill relief with offsetting fiscal measures to avoid adding to aggregate demand and stoking inflation.
- Use income taxation to reclaim relief from higher-income households to increase progressivity of support.

### Subjects and keywords
- Subjects: Consumption, Economic sectors, Energy prices, Energy pricing, Expenditure, Income, National accounts, Natural gas sector, Prices
- Keywords: Consumption, distributional analysis, energy cost support measure, energy prices, Energy pricing, EU government, Europe, household incidence, I. consumer energy price inflation, Income, Natural gas sector, price pass-through, price signal, price-suppressing measure, social safety nets

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_Source: https://www.imf.org/en/publications/wp/issues/2022/12/17/targeted-implementable-and-practical-energy-relief-measures-for-households-in-europe-526980_