The burden of Germanyùs energy transition: An empirical analysis of distributional effects

Germanyùs energy transition has been accompanied by a near doubling of power prices for private households since the outset of the new millennium. Millions of poor households and those that are close to the poverty threshold are likely to suffer from the increase in electricity cost. Focusing on low-income households, this paper illustrates the distributional implications of Germanyùs energy transition by investigating their electricity cost burden between 2006 and 2012, using data from the German Residential Energy Consumption Survey (GRECS). Our estimates suggest that in 2012, on average, households at poverty risk allocated 5.5% of their income to power and, hence, paid nearly as much for covering their electricity consumption as for heating purposes. Given Germanyùs ambitious targets to expand the share of costly renewable technologies in electricity consumption, which has broad support among the electorate, it is to be expected that householdsù expenditure for power will increase in the upcoming years. This raises the urgent question of how to mitigate the regressive impact of further increasing electricity prices on poor households. Direct cash transfers are suggested here as a non-distortionary instrument for easing the burden of high prices, one that is directly targeted at those endangered by energy poverty.