- The gas crisis threatens to morph into “Gasmageddon”: Energy poverty is an old scourge in the EU, even before today’s energy crisis began. The situation has worsened significantly this year as the invasion of Ukraine has caused gas prices to explode to levels not seen in well over a decade. A dual-pricing scheme could address the shortcomings of the counter-measures implemented so far.
- Exploding gas prices are aggravating an already dire situation: the number of households in energy poverty in the EU28 has increased by more than +50% until June 2022. But worse is still to come: Looming gas shortages could drive retail prices up by 200%, tripling the share of German households struggling to pay energy bills to 8.4% by the end of the year. Implemented counter-measures such as tax cuts and price caps have serious shortcomings, not least in curtailing incentives to save energy. A dual-pricing scheme could be a better approach. This would allow each household to buy a pre-defined quantity of energy to power its home at an administered price, while all further energy needs have to be bought at market price.
- Beyond this first layer of ad-hoc crisis measures, a new social contract is needed to mitigate the regressive impact of climate policy and to safeguard the green transformation. The best solution would be the introduction of a new benefit, a type of “energy money” but with a twist: the payment (full or smaller amounts) is made to a so-called “energy savings account”, i.e. the amounts are not consumed but (partially) saved; these savings are topped up by the state. In this way, two birds can be killed with one stone, resulting in behavioral changes to use less energy and the build-up of financial reserves by low-income households.
Averting 'Gasmageddon' and securing a just transition
The gas crisis threatens to morph into “Gasmageddon”
A dual pricing-scheme could address the shortcomings of the counter-measures implemented so far.
Energy poverty is an old scourge in the EU. Even before today’s energy crisis began, millions were struggling to keep their homes heated and pay their energy bills due to low income, high prices and poor energy efficiency. According to the European Commission’s Energy Poverty Observatory (EPOV), 6.6% of households in the EU28 were unable to pay utility bills on time (known as arrears on utility bills) in 2018 and were at risk of being disconnected from the power grid. Meanwhile, 7.3% could not adequately keep their homes heated and 16.2% spent over twice the national median for energy expenses as a percentage of income.
The situation has worsened significantly this year as the invasion of Ukraine has caused gas prices to explode to levels not seen in well over a decade, as shown in Figure 1. On average, household gas prices across the EU have increased by +22% from 2021 levels. But in Germany,
the UK and the Netherlands, gas prices have surged by +58%, +83% and +85%, respectively.
Household natural gas prices in the Eurozone
Sources: Household Energy Price Index, Allianz Research.