EU climate action through an energy poverty lens

Abstract

Carbon pricing can steer energy choices towards low-carbon fuels and foster energy conservation efforts. Simultaneously, higher fossil fuel prices may exacerbate energy poverty. A just portfolio of climate policies therefore requires a balanced instrument mix to jointly combat climate change and energy poverty. We review recent policy developments in the EU aimed at addressing energy poverty and the social implications of the climate neutrality transition. We then operationalise an affordability-based definition of energy poverty and numerically illustrate that recent EU climate policy proposals risk raising the number of energy poor when not accompanied with complementary measures, while alternative climate policy designs could lift more than 1 million households out of energy poverty through income-targeted revenue recycling schemes. While these schemes have low informational requirements and appear sufficient to avoid exacerbating energy poverty, the findings suggest that more tailored interventions are needed. Finally, we discuss how insights from behavioural economics and energy justice can help shape optimal policy packages and processes.