Targeted, Ecological and Social? Evaluation of energy policy relief measures

Due to the impact of the COVID-19 pandemic, Russia’s war of aggression on Ukraine, renewed curfews in China, and the consequences of these events on global supply chains, the inflation rate has reached historic levels in reunified Germany since the beginning of the year. The German government has already adopted two comprehensive measures to cushion the impact of rising prices for energy, food and mobility. However, given the increasing uncertainty in the energy supply and continuing high inflation rates, these do not seem to be enough.

Social welfare associations, in particular, have criticized that the relief measures have so far not considered lower income groups and pensioners sufficiently. At the same time, climate experts fear that individual interventions such as the fuel rebate will create false incentives in the fight against climate change.

Against this background, DIW Econ, together with Prof. Dr Claudia Kemfert, on behalf of the Climate Alliance Germany, has evaluated the existing relief measures and provides an outlook on how ecological and distributional effects can be considered together in a new relief package. This is done based on an analysis of five measures in the areas of energy & heat, transport & mobility and food, which are currently being discussed politically and in the media in anticipation of a further relief package.

The results show that the introduction of a social flat-rate energy transfer in the form of an extension of the flat-rate heating allowance, the reduction of VAT on plant-based staple foods, the permanent introduction of an affordable public transport ticket and a reform of the commuter allowance to a mobility allowance appear to be economically and ecologically sensible.

Study author Maximilian Priem says, “In the short term, especially the expansion of targeted lump-sum transfers, such as the implementation of a social energy lump-sum, can help avoid social hardship without incentivizing climate-damaging behavioural adaptation.”

In the medium to long term, given the foreseeable climate crisis, the measures should be designed in such a way that they additionally develop positive steering effects toward ecological consumption behaviour. The main possible instruments of the measures discussed are strengthening local public transport and reforming the value-added tax system.

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