Abstract:
European economies rely heavily on fossil fuel imports and are exposed to global price shocks. Relief measures face a trilemma: targeting, incentives, and feasibility rarely align. Relief measures can function as taxpayer-financed implicit insurance against energy crises. Based on recent crisis responses, relief implies EU-wide permanent subsidies of around EUR 18/tCO2 (gas) and EUR 10/tCO2 (oil). Such implicit subsidies weaken incentives to reduce fossil dependence and increase vulnerability to future crises.
