How governments can best support consumers during this energy crisis

A more effective approach is to introduce support measures that directly target those most vulnerable to price shocks. This ensures that public money is used more efficiently and reaches the households most affected by the crisis. A key issue is that governments may find it difficult to quickly and efficiently identify those most in need of support.

Fortunately, governments do not always need to start from scratch, and there are ways to improve targeting quickly. Many countries already have policy instruments in place to support low-income households and other vulnerable groups, such as social assistance programmes, unemployment benefits, pension schemes and income-based grants. A quick way to deliver direct support is to ramp up programmes that already target these groups, or to use existing databases to identify households likely to be under financial strain. Governments can also work with municipalities or community organisations that hold relevant information. Targeting can then be refined further by combining this with other household characteristics, such as home energy efficiency or energy consumption data. For countries that might not yet have public administration infrastructure in place to effectively target those in need, strengthening these programmes is an important first step.

Countries have successfully done this before. In 2022 and 2023, the Netherlands introduced an energy allowance for low-income households, providing direct cash transfer of around EUR 1 300 per year. Municipalities were tasked with identifying and paying eligible households, pulling from existing data and infrastructure to ensure support reached those most in need. Since 2018, France has provided direct cash vouchers to low-income households to help cover energy bills, using its national tax registry to identify beneficiaries. In Indonesia in 2022, the government shifted from initial broad-based fuel subsidies to targeted transfers to lower-income groups as pressure on state budgets increased.

A key prerequisite is having the systems in place to target and deliver support to vulnerable households effectively. In Nigeria, for example, financial assistance was provided to 12 million low-income households in 2023 through direct digital transfers to beneficiaries' bank accounts and mobile wallets. Similarly in Brazil, a national registry covering more than 40% of the population has been used to automatically enrol low-income households in several social programmes, including a social tariff scheme which now provides fully subsidised electricity for up to 80 kWh.

In response to the current crisis, several countries have announced targeted measures aimed at supporting those most in need while limiting fiscal. The United Kingdom, for example, has allocated GBP 53 million to support vulnerable heating oil customers, among the hardest hit by rising oil prices. Local councils can determine eligibility and how the support is distributed. In a similar fashion, Pakistan has introduced a relief package targeted at transport operators, such as motorcycle and rickshaw owners who rely on fuel for their daily income, using its existing Benazir Income Support Programme to identify potential recipients and disburse payments directly through digital wallets. Despite these positive examples, however, so far just 25% of government price support measures announced globally in response to the current crisis have been targeted.

There is no exact way of identifying precisely who needs support and who does not. Although some support may still go to households that need it less, leakage is significantly lower than under untargeted schemes. And while some eligible households may still be missed, this can be reduced by allowing households to apply and be reassessed.