Let them spike! (But invest the revenue right)
Why the political reflex to lower fossil energy prices is twice unfair and undermines the energy transition
A familiar crisis and a predictable reflex
We are in an unfortunately familiar crisis again and we see a predictable political reflex.
For the second time in just a few years, fossil fuel prices are highly volatile and skyrocketing due to geopolitical developments. In 2021 it was the war in Ukraine, now it is conflict around Iran. This disproportionately affects households already struggling financially, those who already have difficulty making ends meet. Combined with inflation in recent years, governments feel pressure to step in and provide relief.
The instinct to make fossil energy cheaper is understandable. But it fails to address the underlying problems.
Many countries are discussing measures to reduce fuel taxes or introduce price caps. The price at the petrol station is simply too important in polling. Reducing or capping fossil fuel prices is politically attractive. It delivers immediate and visible relief. However, these are broad, untargeted measures.
Twice unfair: social and structural inequality
Importantly, this approach appears socially fair, but in reality it often backfires and is far from fair.
Higher-income households generally consume more energy and therefore benefit more, while needing the support less. As a result, a large share of public money flows to those who do not need it, while lower-income households receive relatively less support.
Universal energy tax cuts increase inequality rather than reduce it.
But it is worse. There is an additional inequality: between sustainable and non-sustainable households. People who already invested in sustainability, for example insulation, EVs, solar panels, switching to public transport, are effectively penalized when fossil fuels are made cheaper. Their efforts and investments are undermined. At the same time, those who could have changed but did not are rewarded. This weakens the incentive to transition and slows down progress.
Policy undermines the energy transition when fossil fuels are artificially kept cheap.
Distortion, dependence, and delay
These measures are not just quick fixes, they are politically convenient shortcuts that avoid the harder but necessary conversation about reducing structural dependence on fossil fuels. Keeping fossil fuels cheap in response to such shocks reinforces dependence on volatile and often geopolitically unstable regions. High prices are not just a burden, they are also a signal of risk. Weakening that signal delays the structural shift needed for real energy security.
These measures do not just address today’s prices they shape tomorrow’s system. By keeping fossil fuels artificially attractive, they lock in infrastructure, behavior, and expectations that are costly to reverse.
Historically, sustainable choices needed subsidies, i.e. taxpayer money. Today, many sustainable options are becoming competitive, even if margins remain tight. This is despite continued, often indirect, subsidies for fossil fuels. It is overdue to stop subsidizing fossil fuels. To stop rewarding the laggards but to pave the way to sustainability for all. The current crisis makes clear that the next step is not to make fossil fuels cheaper, but to price them fairly.
Spend or invest: a political choice
Higher energy prices generate additional government revenue. This is now used as an argument for broad measures to dampen recent price increases. I agree that the state should not benefit from rising energy prices while vulnerable households carry the burden. Returning funds is reasonable. But how you do it matters.
Every euro used to suppress fossil fuel prices is a euro not invested in reducing future energy costs. Governments are not just spending money, they are choosing not to invest in a system that would make such interventions unnecessary. Direct compensation like rebates, tax cuts, and price caps is temporary. It is consumptive spending. The money disappears without lasting impact, while being unfair in multiple ways.
This is symptom relief, not policy.
Instead of spending this on one-off, ineffective measures, invest the additional revenue it in renewable energy, energy infrastructure, or insulation and efficiency. These reduce costs structurally for everyone, contribute to sustainability, and deliver long-term public value.
Public investment in sustainable energy is not a cost, it is a high-return investment in the future. The measures discussed hence are not only unfair across income groups today, they are also unfair across generations. By postponing necessary investments, we shift the burden and the costs of adjustment into the future.
Part of the additional revenue should be used to support those who genuinely struggle because for many, current prices are a real problem. For others, however, they should serve as a clear and final incentive to change.
Use the moment
And while we are at it, let’s use this crisis that again exposes our dependence on fossil fuels. Use the chance in the crisis. Opponents structurally exploit moments like “dunkelflaute” to create doubt about renewable energy. Proponents of the transition should be just as strategic, maybe even just as cunning in their messaging. Narrative matters. Use this moment to build support for change.
The real choice is not between cheap and expensive. It is between short-term comfort and long-term prosperity.