Distributional and climate implications of policy responses to the energy crisis: Lessons from the UK

Which households are most affected by energy price shocks and what can we learn about the incidence of carbon taxes? How large are the energy, financial, and environmental benefits of improved energy efficiency in the residential building stock? How do energy price setting policies affect incentives to invest in energy efficiency? We use granular property-level data representing more than 50% of the English and Welsh building stock to answer these questions and estimate the impact of recent energy price shocks on energy bills under different energy efficiency investments scenarios. We find that the energy price shock hits better-off regions more than poorer ones, in absolute terms. On aggregate, 30% of energy consumption, totalling GBP 10-20 billion, could be saved if buildings were upgraded to higher energy efficiency standards. Energy savings appear largely concentrated in the wealthiest parts of England and Wales. However, current policies, such as the UK’s energy price cap, weaken incentives for households to invest in energy efficiency upgrades and benefit wealthier households the most. Alternative, more targeted policies are cheaper, easily implementable, and could better align incentives.