Electricity pricing is Europe’s hidden industrial policy

(12 Jan 2024) The subsidy race triggered by the energy crisis in 2022 showed how electricity policy is central to industrial policy. Addressing this at the EU level will become even more important in the coming years as Europe moves to electrify transport and other sectors, argue Ben McWilliams, Giovanni Sgaravatti, Simone Tagliapietra, and Georg Zachmann.

Ben McWilliams is an affiliate fellow in energy and climate policy at the Bruegel economic think tank in Brussels. Giovanni Sgaravatti is energy and climate research analyst, while Simone Tagliapietra and Georg Zachmann are both senior fellows at Bruegel.

The role of government in setting final electricity prices is becoming a main arena of industrial policy debate. The allocation of taxes and tariffs creates a huge discrepancy between the prices paid by different consumers in the same market.

At the same time, Europe’s energy transition depends upon increasing electrification of the economy and increasing the share of that electricity produced by renewable sources. Both factors will raise the relevance of electricity taxes set by governments.

The energy crisis drew attention to this: as electricity prices soared, European industries were confronted with higher and more volatile prices than their overseas competitors. Governments responded with billions of euros in subsidies to reduce prices.

External link

, 12 Jan 2024: Electricity pricing is Europe’s hidden industrial policy