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Navigating the electric storm: assessing policy responses to Europe's energy shock

Author

Listed:
  • Matteo Alpino

    (Bank of Italy)

  • Emanuela Ciapanna

    (Bank of Italy)

  • Luca Citino

    (Bank of Italy)

  • Gabriele Rovigatti

    (Bank of Italy, CEPR)

Abstract

We take an off-the-shelf model of the day-ahead electricity market, adapted from Reguant (2019), and use it to study how different emergency policy interventions proposed in response to the 2021–2022 European energy crisis would feed into short-run wholesale electricity price and consumption dynamics. Calibrating the model to Italian data, our analysis predicts that an EU-wide cap on natural gas prices significantly lowers electricity prices, while consumed quantities increase only marginally. A mandated reduction in electricity demand during peak hours leads to modest price declines, while a national cap on gas prices for electricity generation triggers a sharper increase in consumption. These findings suggest that emergency interventions can mitigate the short-term impact of price shocks, though they may also lead to increases in energy consumption and market distortions.

Suggested Citation

  • Matteo Alpino & Emanuela Ciapanna & Luca Citino & Gabriele Rovigatti, 2025. "Navigating the electric storm: assessing policy responses to Europe's energy shock," Temi di discussione (Economic working papers) 1491, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1491_25
    as

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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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