Energy taxes recycling as an instrument for the mitigation of the expenditure on energy products of vulnerable households in the European Union

Abstract

Environmental problems, particularly climate change, have raised awareness of the need to decarbonize the energy sector. Several policies have been followed worldwide, including high energy taxes in European countries. However, simultaneously, many countries still suffer from energy poverty, and energy taxation only aggravates this problem. Considering this situation, this research proposes implementing green tax reform in European countries where energy tax revenues would be used to alleviate energy poverty. This article analyzes the situation of European Union Member States regarding some relevant variables such as energy tax revenues and energy poverty indicators (inability to keep the home adequately safe, low final energy consumption in households, arrears on utility bills, and electricity prices). The results show a significant variation in the total share required for energy bills, ranging from 5 % to 40 %. Countries with high energy tax revenues suffering from energy poverty are identified as potential candidates for the proposed reform. It was found that Bulgaria, Cyprus, Greece, Italy, Portugal, Romania, and Slovakia are good candidates for reform. This situation is combined with an inefficient tax policy, resulting in a large amount of money being transferred for direct and indirect fossil fuels and environmentally harmful subsidies. An energy tax recycling scheme focused on reducing energy consumption using energy efficiency measures, for example, under a scheme of Public Energy Services, can be optimally combined to redistribute the energy tax income to reduce energy poverty and contribute to decarbonization if combined with a new scheme that removes harmful fossil fuel subsidies.