What is the role of electricity policy in the EU's quest for economic competitiveness?

The role of national governments in setting final electricity prices is becoming a key aspect of industrial policy. The allocation of taxes and tariffs creates a huge discrepancy between the prices paid by different consumers in the same market. As Europe’s energy transition depends on the increasing electrification of the economy, the importance of this issue will keep arising.

The energy crisis highlighted this subsidy issue when governments allocated billions of euros in subsidies to reduce electricity bills. While the acute phase of the energy crisis has passed, growing concerns of industrial competitiveness create political pressures for governments to continue with such subsidies or tax exemptions. Debates in Germany over a preferential electricity tariff for industries and concerns in France over future nuclear power prices have illustrated those political pressures.

It is positive news that both countries have so far resisted the temptation to generously subsidise energy intensive industries, as this would have had consequences for the integrity of the European Union’s single market and non-energy intensive domestic consumers.

However, the debates on economic competitiveness highlight the need for a serious reflection on the future of industrial electricity policy in Europe. In particular, the various distributional questions that would arise by lowering industrial electricity tariffs (eg for households versus companies; energy-intensive versus non-energy intensive companies; various cross-border effects; and trade-offs in attracting new clean technology manufacturing factories) need to be made central to the current debate around industrial policy. This will also be key to preserve the integrity of the EU single market and foster the EU’s economic competitiveness moving forward.

Read the Policy brief by Ben McWilliams, Giovanni Sgaravatti, Simone Tagliapietra and Georg Zachmann, Europe’s under-the-radar industrial policy: intervention in electricity pricing.
 

The Why Axis is a weekly newsletter distributed by Bruegel, bringing you the latest research on European economic policy. 

Sign up for the newsletter.