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Prioritize to Decarbonize: Thermal Retrofits, Carbon Prices, and Energy Inequality

Author

Listed:
  • Sophie M. Behr
  • Merve Kucuk
  • Maximilian Longmuir
  • Karsten Neuhoff

Abstract

The energy crisis following Russia’s invasion of Ukraine exposed the heightened vulnerability of low-income households to rising heating costs, particularly those in energy inefficient buildings. Using data from the German Socio-Economic Panel (SOEP), this study examines the distributional impact of heating costs across income deciles and evaluates the effectiveness of policy interventions. We find that low-income tenants are the most vulnerable segment of the population, with elevated risks of energy poverty. While carbon pricing with landlordtenant cost splitting shields low-income households from carbon costs, it fails to offset overall energy price increases. In contrast, a "Worst-First" retrofit strategy, prioritizing upgrades in the least efficient buildings, substantially reduces heating costs and mitigates energy poverty. Our findings highlight the need for targeted retrofit policies to ensure both equitable decarbonization and economic relief for vulnerable households.

Suggested Citation

  • Sophie M. Behr & Merve Kucuk & Maximilian Longmuir & Karsten Neuhoff, 2025. "Prioritize to Decarbonize: Thermal Retrofits, Carbon Prices, and Energy Inequality," Discussion Papers of DIW Berlin 2119, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp2119
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.953639.de/dp2119.pdf
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    References listed on IDEAS

    as
    1. Ahlrichs, Jakob & Rockstuhl, Sebastian, 2022. "Estimating fair rent increases after building retrofits: A max-min fairness approach," Energy Policy, Elsevier, vol. 164(C).
    2. Sophie M. Behr & Till Köveker & Merve Kücük, 2025. "Understanding Energy Savings in a Crisis: The Role of Prices and Non-monetary Factors," Discussion Papers of DIW Berlin 2112, DIW Berlin, German Institute for Economic Research.
    3. Hunt Allcott & Christopher Knittel & Dmitry Taubinsky, 2015. "Tagging and Targeting of Energy Efficiency Subsidies," American Economic Review, American Economic Association, vol. 105(5), pages 187-191, May.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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