There are better, fairer and cheaper ways than meddling with prices
Save time by listening to our audio articles as you multitaskAlas, politicians are botching their response. To stop rising wholesale energy prices passing through fully to consumers’ bills, many have resorted to price caps and energy-tax reductions. Liz Truss, a Conservative politician vying to become Britain’s next prime minister, is talking of cutting payroll taxes. But price ceilings do nothing to reduce energy use and tax cuts will not protect the poorest.
Hearteningly, there are signs that people and businesses can and do respond to high prices by conserving energy. They are also more resilient than fearful governments might think. In Germany farmers and industrialists are importing more ammonia and other energy-intensive chemicals, rather than relying on dearer domestically produced inputs. Studies suggest that both German households and firms have reduced their consumption of natural gas since mid-2021.
Sometimes conservation can be galvanised by regulation. Spanish businesses and shops now go dark after 10pm, and the air-conditioning standards for public and commercial buildings are set at a minimum of 27°C, to encourage Spaniards to go shopping in their-shirts. Likewise, energy companies can help change behaviour by telling people how much energy they use compared with their neighbours. Such interventions are cheap , and can help defuse the incendiary politics of high prices.
But governments also need to protect those most in need, notably poor people, for whom energy bills make up a bigger share of household spending. Politicians cannot stop rising energy prices from making economies worse off, but they can determine who bears the brunt of the shock. Support, in the form of rebates on energy bills for the poorest, or even cash bonuses , would help the neediest, while still encouraging consumers to conserve energy where they can.
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