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6. Policy measures to reduce energy poverty

This section gives a presentation of each Nordic country’s approach and short-term emergency measures implemented to protect vulnerable consumers from high energy prices during the recent energy crisis. The identification of policy measures is based on previous studies, desk research, and in-depth interviews with relevant authorities and administrators.
Within this section, the short-term impacts, and in some instances the medium and long-term impacts, of the identified measures will be discussed. However, it is worth noting that few mitigation measures have been evaluated fully.
In addition to this, we will compare policy measures in the Nordic countries with measures in Germany and the Netherlands. These two countries have been chosen as they resemble the Nordic countries on some key aspects. These aspects include similar weather conditions, socioeconomic characteristics, energy sources and energy interconnectors (see section 6.6 for elaboration). The implemented measures across countries are also discussed in terms of risks and potential medium- and long-term effects.
An overview of the implemented measures is provided in table 2 below, where the key points include the following:
  • All countries but Iceland implemented both measures targeted at the broader population with price regulations on different energy sources, tax breaks (lowered to the EU-minimum standard), and measures targeting the most vulnerable citizens like social transfers and social energy tariffs.
  • Fewer countries implemented measures that allowed consumers to postpone the payment of their energy bill to a later date.
  • Implementation of subsidies for energy-efficient solutions applies to all the countries being compared. This measure distinguishes itself from the other measures as the aim is either 1) to lower the energy consumption in general due to e.g. better insulation or 2) to reduce the consumption of certain types of energy sources due to replacements with cheaper and more renewable sources. In most countries, the mitigation measures are/were accompanied by information campaigns, informing citizens about energy savings.
  • Lastly, some countries have started developing a set of indicators to define and identify vulnerable customers.
Table 3. Implemented measures in the Nordics, Germany and the Netherlands
Country/Measures
Denmark
Finland
Iceland
Norway
Sweden
Germany
Netherlands
Price regulation (fuel, gas, electricity)
✓
✓
-
✓
✓
✓
✓
Postponement of energy bills
✓
✓
 -
-
-
-
-
Tax breaks
✓
✓
 -
✓
✓
✓
✓
Social energy tariffs
-
-
-
-
✓
-
-
Social transfers to vulnerable groups
✓
✓
(✓)
✓
✓
✓
✓
Subsidies for energy-efficient solutions such as heat pumps and solar panels
✓
✓
(✓)
✓
✓
✓
✓
Information campaigns and education on saving energy
✓
✓
-
✓
✓
✓
✓
Harmonised indicator set to monitor energy poverty
-
(✓)
(✓)
(✓)
(✓)
-
(✓)
Learnings and experiences from these previous policy measures will be examined in chapter 8 with respect to policy recommendations.

6.1 Denmark

During the energy crisis in 2022, Denmark implemented several measures targeting citizens who were at risk of being affected by rising energy prices, and consequently energy poverty. This contrasts with the norm, where poverty-related deprivation, including housing deprivation, is addressed through social policy (versus energy policy). Unsurprisingly, the majority of the implemented measures targeted the most vulnerable groups who had already received some type of social subsidy. In contrast, fewer measures targeted the entire population through e.g. the electricity tax reduction.
The targeted measures include social transfers such as a one-time payment, known as a heating cheque, of €807 for households with low incomes and specific types of heating. This heating-cheque was followed by several other tax-free, one-off payments to some welfare recipients with a view to providing help to these groups in the light of rising energy prices. Recipients included pensioners, students, single parents, and later, parents receiving child benefits.
Measures targeting the broader population were also implemented in Denmark. One such measure was an electricity tax reduction, which was lowered to the EU's minimum electricity tax threshold
. Furthermore, a possibility of voluntary postponement of extra bills for energy consumption was introduced for both households and companies. As a part of the ’heating package’, the government negotiated an agreement with companies to even out heating bills (price regulation) as to prevent sudden shocks in payments. The package also included an agreement admitting municipalities to apply for additional compensation to cover increases in citizens’ heating costs as well as strengthened information campaigns regarding energy preservation. Lastly, the Danish Energy Agency conducted a national information campaign, which in a later evaluation proved to have contributed to significant electricity and heat savings
.
No actual evaluation of the implemented measures has been conducted to estimate the impact on the target groups’ buying power. However, there was extensive public debate on the impact of some of the measures. Especially the heating cheque received some critique related to the consequences of increasing people’s buying power in a time with relatively high levels of inflation. Yet, there is no evidence indicating that the one-time subsidy boosted the inflation. Also, the heating cheque received some critique as the data being used to identify the target group were not updated (BBR national data). Therefore, some non-vulnerable groups also received a cheque they technically were not eligible to receive. It is most likely that the monetary measures have an impact on buying power – especially for the most economically vulnerable citizens – in the short run, while measures related to energy efficiency will have an impact in the longer run depending on the stability and price of the new energy source.

6.2 Finland

During the energy crisis in 2022-2023, several fixed term policies were introduced by the government in Finland to support households with increased energy costs in addition to existing social policies. It is estimated that the energy crisis cost Finnish households an additional five billion euros due to increased energy prices
.
Measures targeting reductions on transport to regulate the price include a temporary increase in the maximum deduction for commuting expenses from €7,000 to €8,400. Later, a 7.5 percentage point reduction in the biofuel distribution obligation for 2022 and 2023 was agreed upon.
The household-focused measures encompass initiatives such as a reduction in value-added tax on electricity from 24% to 10% with the purpose of improving the households’ purchasing power and lump-sum reimbursements for electricity expenses. Later, the government approved an amendment proposal to the Income Tax Act, temporarily incorporating tax credit provisions for household expenses associated with electricity bills. The Social Insurance Institution (Kela) also offered financial support to households that could not fully make use of the fixed-term tax credit for electricity due to their low income.
Retail sellers of electricity were required to extend the payment period of consumption-related electricity bills at the customer’s request from January to April 2023. The extension to the payment period for electricity bills was planned in order to help households and companies pay their electricity bills in the winter months.
Electricity cost reimbursements were paid automatically to the consumers entitled to them as a deduction to their electricity bill issued by the electricity company. The retroactive reimbursement for electricity costs was paid per metering point to those end-users whose electricity price in their electricity contract exceeded 10 cents per kilowatt-hour, and to end-consumers with spot price-based electricity contracts.
The fixed term policies have been criticised for being poorly targeted, not cost-efficient, and ineffective in supporting the actual vulnerable groups at risk. For example, the measure of lowering the value-added tax was offered to everyone regardless of the risk-level of the group they belonged to. Key challenges of planning these policies were lack of time in planning, poor understanding of the groups and individuals at risk and poor availability of data due to their data being split between different systems and organisations. There are no published studies yet of the efficiency and impacts of the fixed term policies implemented in 2022-2023.

6.3 Iceland

Iceland has not implemented specific policy initiatives to address energy poverty in response to the recent energy crisis, as the country has remained unaffected by the escalating energy prices stemming from the crisis (cf. chapter 5). However, residents in areas that do not have access to geothermal heating and instead heat their houses with other energy types (e.g. oil or diesel) are eligible to receive subsidies for heating, since it is much more expensive than heating with geothermal heat. Being disconnected from geothermal heating can thus be considered an indicator to monitor energy poverty. The group disconnected from district heating is estimated to constitute approx. 10% of the population in Iceland
. In 2002, a law was passed on subsidizing house heating costs
78/2002: Act on subsidizing heating costs
. However, subsidies for fringe areas or ‘cold areas’ were implemented before the energy crisis and are therefore not considered a reaction to the energy crisis in 2021-2023. Iceland also has grants that work to promote energy efficiency and a subsidy scheme, where VAT on heat pumps can be refunded when shifting from fossil-fuel-based heating (or electric heat)
.

6.4 Norway

In Norway, the prevailing perspective on energy poverty assigns energy poverty to an insufficient energy supply relative to the demand level. This approach is mirrored in the increased support to energy efficiency initiatives in municipally owned rental housing, resulting in lower electricity bills for the tenants
. In addition to fostering the search for new and more secure energy sources to prevent future instances of energy poverty, Norway has implemented measures to alleviate its current impact on the most vulnerable citizens and the population in general.
To help households deal with extraordinary electricity prices, the Norwegian government has implemented an energy compensation scheme for high energy prices. When the spot price on energy within a specific hour exceeds 0.73 NOK/kWh, customers will be reimbursed 90% of the difference between the spot price and the 0.73 NOK/kWh threshold. The scheme covers household consumption of up to 5,000 kWh per month. Moreover, the general electricity tax was reduced by 0.08 NOK/kWh for the coldest months, January to March, which was a fee reduction by 47%
.
Additionally, the Parliament has approved increased social transfers such as housing support, an exceptional grant for students, heightened assistance for widows, and increased framework grants to municipalities to address the rising costs of social assistance payments. Existing subsidy schemes for these vulnerable groups were used as a means to channel the support. The measures include increased housing allowance by a total of NOK 1.9 billion (€0.19 billion) in 2022 to alleviate the situation of high electricity prices. Students who have paid electricity in addition to their rent and who receive a loan/scholarship could apply for a one-off payment of NOK 1,500 (€ 129.34). The electricity grant for students was in addition to the ordinary electricity subsidy that all households with electricity expenses received. For municipalities, the economic framework was increased in 2021 by NOK 100 million and again in 2022 by NOK 300 million to cover increased social assistance payments due to high electricity prices.
Moreover, the government established an energy efficiency subsidy scheme in certain municipal buildings. NOK 263.7 million has been allocated to the scheme. The subsidy will be applied to measures that reduce the energy demand in municipally owned rental housing, care homes and nursing homes. By reducing electricity costs in municipally owned rental housing, the scheme will be able to benefit low-income households, among other things.
As mentioned in section 4.4.4, the Fritjof Nansen Institute (FNI) initiated a research project, “Power Poor”, in collaboration with SBB, CICERO and the Centre for Development and the Environment at the University of Oslo to define, identify and estimate the prevalence of energy poverty.
In Norway, some research has been conducted to estimate the impact of the implemented policy measures. The research documents that the electricity allowance did reduce the utility loss for households because it reduced the price increase for the consumers. In extension, the report also shows that the consumers did continue saving energy even though they received the subsidy, which is central in a situation of scarcity. However, to the extent that the electricity subsidy leads to increased energy consumption, it will also lead to a loss of efficiency. The less households adapt their consumption as a result of the electricity allowance, the smaller this loss of efficiency for society. Thus, there are potential risks for security and again affordability if the consumer does not change behaviour
.

6.5 Sweden

As mentioned, energy poverty is considered social policy in Sweden. This means that no policy measures at this moment are implemented to target energy poverty solely. Instead, vulnerable citizens can receive economic support from their local municipality to cover essential services within the regular social welfare scheme. During the energy crisis in the autumn and winter of 2021 and in 2022, some temporary policy measures were implemented. The policy measures were targeted towards the consumers through temporary subsidy schemes and a compensation scheme differentiated by energy zones. Moreover, a subsidy was targeted towards agricultural companies to compensate their extra costs related to electricity and transport.
Considering the broader mitigation measures, a temporary progressive compensation measure was implemented in January 2022 to help the most affected households. The measure targeted households with a consumption above 2,000 kWh/month. They received SEK 2,000 monthly for the three months. Later, a temporary subsidy scheme was implemented to support households and businesses in energy price zones in the south of Sweden (technically called SE3 and SE4). In zone SE3, the support was SEK 0.50, and in zone SE4, SEK 0.79 per kWh of electricity consumed between October 2021 and September 2022
. To even out the price differences and lower the prices in the south, Svenska kraftnät also plans to increase transmission capacity from northern to southern Sweden. Moreover, a temporary tax reduction on diesel and petrol to the lowest permitted level in EU was implemented. Finally, households can access subsidies covering 50 percent of the expenses for insulation and heat pump installation in residential structures. Meanwhile, companies and tenant-owned apartments are eligible for support, covering up to 30 percent of the costs associated with diverse energy efficiency measures.
Regarding the social transfers targeted a more specific target group, the housing allowance for families with children was used as a channel to elevate the subsidy temporarily from July to December 2022. The additional child allowance, constituting 25 percent of the initial housing allowance, is capped at a maximum of €128 per month. The anticipated expenditure for this measure is estimated to be €48 million.
No evaluations on the previous mitigation measures have been conducted. However, some experiences and learnings have been discussed based on these temporary measures. The electricity support scheme received some critique because it compensated those with the highest consumption (gave up to a maximum of SEK 6,000 in compensation). The initial design hit a blind spot as the reimbursement was based on consumption. Customers with fixed electricity prices (tied to long contracts with low prices) and customers in price areas in the north of Sweden with low electricity prices received as much as those most affected if they consumed above a certain level. The incentive was thus partly distorting. Consequently, there is an attention towards linking the work on energy poverty with the work that social authorities do because there is an overlap between poor and/or socially vulnerable citizens and the risk of energy poverty.

6.6 EU member states

To broaden the comparison of the findings on policy measures in the Nordic countries with other relevant countries, we have selected two European countries that resemble the Nordic countries on different parameters. For this purpose, we have decided to compare the Nordic countries with the Netherlands and Germany. This section provides a summary of the implemented policy measures in Germany and the Netherlands.
Comparing the Netherlands and Germany to the Nordic countries is meaningful due to shared parameters. Firstly, similar weather patterns in Northern Europe impact energy systems in both regions. Secondly, Germany and the Netherlands mirror the diversity in country sizes found in the Nordic countries. Thirdly, personal income profiles in Germany and the Netherlands resemble those in the Nordics. Lastly, the availability of specific energy sources such as hydro, wind, or nuclear, influences responses to crises. Additionally, interconnectors between the Netherlands, Germany, and the Nordic countries indicate shared dependencies on energy sources and price flows
.
In general, both Germany and the Netherlands earmarked and allocated a higher percentage of their GDP to households and companies to shield them from the energy crisis in the period September 2021 to January 2023
. Germany allocated funding equal to 4.4% of their GDP while the Netherlands allocated 4.6%. In comparison, Norway allocated 2%, Sweden allocated 1.3%, while Denmark and Finland allocated around 0.5% of their GDP
Iceland did not implement any measures due to the energy crisis.
. Although the Nordic countries allocated a relatively smaller share of their GDP to mitigate the energy crisis compared to Germany and the Netherlands, the countries still implemented the same type of measures.
The limited allocation for addressing the impacts of increasing energy prices in the Nordics can be ascribed to the prevalent belief that the existing welfare state adequately safeguards the most vulnerable citizens.

The Netherlands

In the Netherlands, the government has implemented measures that are both targeted vulnerable citizens and companies as well as the entire population. Most of the implemented measures are related to tax regulations and price caps, and fewer measures are targeted towards vulnerable customers specifically through subsidy schemes.
In 2022, the government reduced the energy tax for households and businesses, costing €2.7 billion for household compensation and €0.5 billion for company compensation. Later on, a price cap agreement on electricity at €0.40/KWh and the freezing of gas prices at €1.45 per cubic meter for specific levels of consumption were introduced. Finally, a price cap on electricity starting in January 2023, restricting the price to the average from January 2022 for an average level of consumption.
An allocation of €150 million to support vulnerable households with high energy bills and poorly insulated homes through insulation-improving measures were implemented (social transfers and subsidy for energy efficiencies). At the same time, the government increased the one-off energy allowance for people around the social assistance income level to €800, along with a reduction in the VAT on energy from 21% to 9%, and a 21% cut in the excise duty on petrol and diesel. Later, one-off energy consumption benefits for vulnerable households worth €1,300 were implemented as part of an energy package.
In terms of defining energy poverty, The Ministry of Economic Affairs and Climate Policy has asked the national statistics in the Netherlands (CBS) and a research centre (TNO) to provide an up-to-date assessment of energy poverty at national and local level. In this regard, the identification of a harmonised set of indicators is in progress
.

Germany

The German government has implemented a series of measures to address the challenges posed by rising energy prices and the impact on vulnerable consumers. Initially, there was hesitation to intervene, but subsequently several measures were implemented.
Firstly, the government announced reductions on the price of electricity for all citizens. Later, the government announced a comprehensive €200 billion ’economic defence shield’ in September 2022, including measures like the 'gas price brake' to reduce average gas prices and scrapping a planned gas consumption levy, which also covered all citizens. In between the universal measures, some measures targeting more vulnerable groups were also introduced (social transfers). These include coverage of heating bills, including a one-off grant package of €130 million allocated to low-income households. Additionally, the government passed multiple relief packages, including tax reductions, increased payments for poor families with children, and subsidies for low-income households.
Finally, utility companies received financial support from the government. In July 2022, a €17 billion rescue package was provided as a help-package to the utility company Uniper. The government also announced an energy tax, allowing utility companies to pass on increased costs to consumers. Eventually, the European Commission approved a plan to recapitalize the energy company.

6.7 Cross-cutting perspectives

In this section, we critically examine the implemented measures in the Nordics, the Netherlands and Germany. The mitigation measures are compared according to the type of mitigation measure (e.g. a green, a social or a mix), including target group/reach, as well as the incentive structure on which the measures build.
For the measures targeting the most vulnerable groups, existing welfare schemes were used to identify the groups eligible for support. For example, Germany, Norway, and Denmark implemented lump-sum payments for students. Existing schemes like child support, housing allowances, and/or social assistance were also boosted in Germany, the Netherlands, Denmark, Finland, Norway, and Sweden. These measures were implemented both to reduce the specific impact of increased energy prices on the vulnerable to act as a buffer against general inflationary impacts caused by increased energy prices throughout the economy (e.g. on the cost of food). It is noteworthy that the use of the existing welfare schemes may indicate that countries consider current welfare recipients as a good proxy for sections of society that are vulnerable to energy poverty.
However, the use of existing welfare structures has faced criticism for its effectiveness in targeting those citizens most in need of support. While increased welfare schemes have positively had an impact on economic robustness, determining the adequacy of the support in relation to energy poverty remains challenging. Additionally, within the vulnerable citizen group, varying circumstances such as distance between home and work, residency in specific energy zones, and the energy sources used can act to in­crea­se as well as to decrease vulnerability
. These critiques underscore the necessity for more finely meshed indicators. Therefore, there is a need to conduct regular policy evaluation to assess the effectiveness of such measures if they are to be relied upon.
For measures such as price regulation and tax breaks that have been implemented without discriminating between recipients, the entire population benefits. While providing short-term economic respite, there is a risk of feeding into inflation, especially in the context of already existing high inflation levels. Additional criticism includes concerns that these measures may encourage more energy consumption at a time when energy conservation is crucial for price stability. A study from Norway, however, found little evidence that lower prices during the energy crisis led to increased consumption
. It remains unclear whether this result is due to effective communication campaigns around reducing energy consumption or another dynamic – as such, it is also uncertain whether the result could be replicated in other countries. And, from a socio-economic perspective, artificially low prices on certain energy types in the medium- to long-term may diminish incentives to investment in more sustainable sources
.
Subsidies for the transition to more energy-efficient solutions have also been implemented in the focus countries of this study. This approach is generally endorsed to reduce the demand burden on the energy system. Imbalances between energy demand and supply constitute a critical factor for energy prices. Consequently, addressing this imbalance through demand efficiency has a positive spill-over throughout society. Nonetheless, there are very particular challenges to be found with energy efficiency renovations. During the workshop, some concern about energy-efficiency schemes was raised. A major critique was with respect to the qualification of buildings to be included in the scheme. There is a risk that some buildings will not qualify for energy-source replacements owing to poor quality of the existing building, leading to an inability to secure financing due to high existing risks. Also, there was a concern that the most vulnerable groups might not be able to take advantage of the subsidies simply due to a lack of existing capital or resources (e.g. upfront costs, lack of knowledge, health issues, etc.).
An alternative approach to the use of existing welfare channels or policy mechanisms for support is to develop targeted indicators that either reinforce existing channels or can be used independently of existing systems. However, indicators that are more detailed also come with some risks. These include the lack of updated databases, which can lead to misleading/outdated information (like the Building and Property Register, BBR, in Denmark), and databases that do not cover all households/citizens (like in Sweden where some households’ energy costs are included in the rent).
Nordic Energy Research I www.norden.org/publications I pub@norden.org