The increase in energy prices since mid-2021, leading to a surge in inflation overall, has severely affected households in the EU, particularly low and middle-income households. The energy-driven inflation brought acute risks of exacerbating already existing inequalities and worsening energy and transport poverty. To our knowledge, this paper is the first to analyse the impacts of recently observed price changes on (expenditure-based) energy and transport poverty and along the income distribution at EU level. It does so by using household survey micro-data in a static simulation exercise.

Our analysis shows that in the absence of behavioural responses and direct income support (expenditure-based) energy and transport poverty levels would have substantially increased across the EU because of energy price changes between August 2021 and January 2023, compared to the previous 18 months.

In line with the existing literature, our analysis also confirms that while residential energy expenditure is higher among low-income groups, expenditure for energy for transport fuels tends to increase along the income distribution. Increasing gas and electricity prices were the main drivers of the impact of skyrocketing energy prices for households. These price increases have also indirectly contributed to rising food prices that particularly affect lower-income households.

To mitigate the effects of the increasing prices, Member States adopted a wealth of measures aimed at providing fast and tangible relief against high energy prices and costs of living, of which some have been targeted to vulnerable households but most were non targeted in terms of budgetary impact. As price pressures have eased, Member States are phasing out support measures, also to preserve the stability of public finances.

The quantitative modelling results discussed in this paper consider only those measures that have direct impact on consumer prices, such as price caps or reduction in tariffs, VAT or other consumption taxes. These measures constitute approximately 28% of the total number of measures implemented. Hence the results of this paper clearly show that the emergency measures implemented by Member States responded to an urgent need at the time to mitigate the potential and actual impacts of the energy prices spike, which would have severely exacerbated poverty and inequalities otherwise. However, by being untargeted, many measures had a regressive effect and a high cost on public finances.

Findes i