Energy Subsidies of the West
Holy Stimulus Batman!
To address the exceptional rise in energy prices, the West has unleashed swaths of subsidies including emergency support to households, state aid to companies, and tax reductions, all of which are stimulatory in nature and do nothing to address the supply side. In turn, this likely leads to higher inflation as it does nothing to curb demand. I have compiled a list of what we have so far from the beginning of this year.
The US federal government is providing more than US$8.3 billion to help families and individuals with their home energy costs, including summer cooling, through the low-income home energy assistance program (LIHEAP).
The British government announced a support package of GBP 15 billion that covers a rebate of GBP 550 each for around 28 million households. All domestic energy customers in Britain are expected to receive a GBP 400 grant to help with the cost of their energy bills through the energy bill support scheme.
Newly appointed UK Prime Minister Truss has proposed a two-year “energy price guarantee” which means average household bills for heating and electricity will be no more than 2,500 pounds a year. The British government hasn’t said how much the price cap will cost, but estimates have put it at over 100 billion pounds.
France has offered an “energy cheque” worth between 48 euros and 277 euros for eligible households, according to their income and size of the household. France has also forced EDF the electricity utility to limit electricity wholesale price rises to 4 percent for a year. The country’s domestic tax on final electricity consumption has also been curbed from 22.50 euros/MWh (megawatt hour) to only 1 euro/MWh for households, and 0.50 euros/MWh for businesses.
Italy approved a new aid package worth around 17 billion euros to help shield firms and families from surging energy costs and rising consumer prices.
Spain has cut value-added tax (VAT) on energy bills from 21 percent to 10 percent, whilst also cutting an existing tax on electricity from 7 percent down to 0.5 percent. Spain has also put a one-year long cap on gas prices, which ensures they remain lower than an average of 50 euros/MWh.
Portugal has followed Spain and has also put a one-year long cap on gas prices, which ensures they remain lower than an average of 50 euros/MWh.
Low-income households were offered an additional 800 euros of support through the municipality. The government is also lowering VAT on energy from 21 percent to 9 percent and cutting duty on petrol and diesel by 21 percent, until the end of the year. In addition, other support measures for all households include lower energy taxes and an increase in the lump sum discount on energy bill taxes.
Denmark is offering a cash handout to the elderly and other measures totaling 417 million euros, including a cut to a levy on power prices. A “heat cheque” worth 269 million euros will be paid to over 400,000 households hit by rising energy bills.
Germany has pledged to lower VAT on natural gas from 19 percent to 7 percent until the end of March 2024. Germany also approved two relief packages for a total of 30 billion euros to help its citizens with rising energy prices this year. The German government will offer a one-off energy price flat rate of 300 euros to all taxpayers with poor families getting more.
Greece has already spent about 8 billion euros ($8 billion) to subsidize power bills since last year. Mitsotakis pledged to maintain the support until at least year-end.
In May, the Italian Government approved "Decreto Energia 2022". The energy decree introduced a reduction in excise duties on petrol and diesel used as motor fuel. An increase in tax credits for energy-intensive companies (from 20% to 25%) and tax credits for companies with high natural gas consumption (from 15% to 20%). Other measures include payments in installments of energy bills, wage subsidies, and tax credits for fuel purchases in the agriculture and fishing sectors.
The federal government has taken some measures announced as part of relief packages with one-off payments and changes in the tax system.
Austria starts anti-inflation payments with a €180 bonus family allowance. As inflation rises, the Austrian government has prepared several one-off payments for families and residents. The price cap for electricity will last until June 30th, 2024, benefiting every household in Austria. The subsidy will cost public coffers. Finance Minister Magnus Brunner (ÖVP) said the costs would amount to €3 billion to €4 billion.
The Austrian government estimates that the measure will help Austrian homes save from €400 to €800 on energy bills a year. The Finance Ministry added that the average household’s savings would be €500.
As energy market prices increase around the world, Norwegians will only pay a set amount decided by the government last year. According to a scheme introduced by the government in 2021, Norwegians only pay bills in full when prices are under 70 crowns (€7) per kWh. When energy bills pass that threshold, the government covers 80 percent of the total.
Bulgaria in May approved a 2 billion levs (€1 billion) package aimed at shielding companies and low-income consumers from the surge in energy and food prices caused by the conflict in Ukraine.
Since July, the government is also offering a discount of 0.25 levs (€0.13) per liter of petrol, diesel and liquefied petroleum gas, and methane until the end of the year and it’s scrapping excise duties on natural gas, electricity, and methane.
Finland’s government said on September 4 that it plans to offer up to €10 billion of liquidity guarantees to the energy sector to help prevent a financial crisis.
"The government's program is a last-resort financing option for companies that would otherwise be threatened with insolvency," Finland's prime minister Sanna Marin told a news conference.
Hungary has capped retail fuel prices at 480 forints (€1.19) per liter since November, well below current market prices. The measure led to such an increase in demand that the government was forced to curb eligibility for the scheme.
Sharp rises in gas and electricity prices have also forced the government to curtail a years-long cap on retail utility bills, setting the limit at national average consumption levels, with market prices applying above that.
Hungary has also imposed an export ban on fuels and recently loosened logging regulations to meet the increased demand for solid fuels such as firewood.
Poland has announced tax cuts on energy, petrol, and basic food items, as well as cash handouts for households. It has also extended regulated gas prices for households and institutions like schools and hospitals until 2027.
The government in July agreed on a one-off payment of 3,000 zlotys (€633) to households to help cover the rising cost of coal. Prime Minister Mateusz Morawiecki has said the total cost of curbing energy prices in Poland will reach around 50 billion zlotys.
Romania’s coalition government has implemented a scheme capping gas and electricity bills for households and other users up to certain monthly consumption levels, and compensating energy suppliers for the difference. The scheme is due to be in place until March 2023.
Prime Minister Nicolae Ciuca estimated in February the support scheme would cost some 14.5 billion lei (€3 billion), but analysts now expect it to exceed €10 billion euros.
Sweden has set aside 6 billion Swedish crowns (€559 million) to compensate households worst hit by the surge in electricity prices.
Prime minister Magdalena Andersson said on September 3 that Sweden will offer several hundred billion Swedish crowns in liquidity guarantees to energy firms to help avert a financial crisis after Gazprom shut the Nord Stream 1 gas pipeline.
A savings tariff was approved by the government. The average amount of energy support will be around CZK 15,000, of which households will receive around CZK 4,000 this year. The saving tariff is intended for households.
The total amount of aid combines a contribution through a cost-saving tariff and a waiver of the fee for renewable energy sources, which amounts to CZK 599 for each megawatt hour of electricity. The waiver of the fee for renewable resources applies not only to households but also to companies or organizations.
Every Belgian household received a one-time payment of €100, with the exception of self-employed people who count their energy costs as a business expense and therefore have the contract set up under their company.
The subsidy was per household, not per person. It does not matter what type of energy is used, for example, gas, fuel oil, pellets, etc.
As a result of an energy price increase, the state will start paying energy subsidies to households with low or medium income. The subsidy will partially compensate for their electricity, gas, and district heating expenses.
A person’s/household’s income is considered low or medium if their average salary during the subsidy period is:
· €1126 per the household’s only/first member;
· €563 (or 50%) per every household member aged 14 and up;
· €338€ (or 30%) per every household member under 14 years of age.
The Energy Benefit is aimed to mitigate the effect of the increase in expenditure on water and electricity bills of low-income families.
A person who qualifies for an Energy Benefit automatically or through an Income Means Test, shall be entitled to:
An amount to offset 30% of the consumption of electricity prior to the eco reduction up to maximum assistance of €75 per year per person in the household, and
If the claimant or spouse is the account holder, they are entitled to a subsidy of not more than €65 per year in respect of the rent of the electricity meter, and a subsidy of not more than €59 per year in respect of the rent of the water meter.
In March, the Government’s Electricity Costs Emergency Benefit Scheme took effect. All households were to receive €200 off their domestic electricity bills, a 100% increase from the original plan set forth in December of 2021. Total funding for the scheme has increased debt from the original €215 million to €400 million.
In sum, the key takeaway here is that none of these things address the supply side. The West is going to have to address these issues or continue to plow into an unmitigated disaster for years.
*Authors Note: I am sure that this list will continue to grow, I have done my best to compile this list to the best of my ability with the information that is available publicly, but if your country is not listed, please send me a comment and source and I will be happy to add it!
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