Published on 22 April 2024
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The impact of the European energy crisis: the case of Czech Republic

Surging energy prices in recent years – worsened by the Russian invasion of Ukraine and geopolitical tensions – have caused much financial hardship, particularly among vulnerable groups. Policy changes are urgently needed to improve energy efficiency and resilience, writes Filip Mandys.

Europe has faced a severe and long-lasting cost of living and energy crisis. Countries in Central and Eastern Europe were particularly at risk, due to their close proximity to the war in Ukraine, as well as their heavy reliance on Russian fossil fuels for their energy needs. As a result, households have faced a reduction in their living standards, and many businesses saw their costs spiral.

Soaring energy prices affected the United Kingdom and the Czech Republic to a greater extent than most other countries. Policymakers in both quickly adopted targeted support measures, aimed particularly at the most vulnerable groups. But in addition to these necessary short-term measures, both countries will need to introduce policies aimed at longer-term energy efficiency and resilience.

Expenditure on energy typically represents a significant portion of households’ budgets, along with other essential living costs such as rent. In Czech Republic and the UK, it was 11.3% and 9% in 2022, respectively. However, energy alone frequently represents over 13% of total household expenditure in the OECD countries, and can reach up to around 16%, as in Slovenia, Mexico, and Lithuania (Figure 1). This means that any changes in the prices of energy will have a profound effect on household budgets and therefore, consumer spending. Moreover, people are usually unable to cut their energy consumption by much when its price goes up, as it includes essential needs, such as heating, lighting, and cooking. My research (published in the recent book Navigating Europe’s Socio-Economic Crisis) sheds light on the impact of the energy crisis across Europe, particularly the  effect on different socio-economics.

Figure 1: The share of energy expenditure in total household expenditure, comparing 15 OECD countries with the highest energy cost share in 2022. The data was obtained from the OECD.

The analysis focuses on the period between February 2022 and February 2023 – one year from the start of the Russian invasion. During this time, the energy prices in both the United Kingdom and Czech Republic increased substantially. According to the data from Eurostat, the electricity prices in the UK have increased by 67% since February 2022, while the gas prices have more than doubled. This is in major contrast to the general inflation rate during this time period of 8.7%, showcasing that a large share of the general inflation in the UK was contributed to by energy inflation. The sharp increase in gas prices in particular hit the UK households very hard, as almost three quarters of UK homes use mains gas central heating.

Czech Republic experienced an even larger increase in energy prices, particularly in terms of gas, electricity, and solid fuels. Since the beginning of 2022, the price of electricity and solid fuels increased by about 95%, while the price of gas rose by over 110% (Figure 2). This has been primarily caused by the heavy reliance of the Czech Republic on gas imports from Russia prior to the war, which were at 97% in early 2022. The war therefore affected not only the households’ direct consumption of gas in terms of heating or cooking, but also the cost of production of electricity in gas-fired power plants.

Figure 2: Development of the monthly disaggregated energy price indices in the Czech Republic (2017 – 2023) – prices of electricity, gas, solid fuel, liquid fuel, heat, and automobile fuel.

Energy crisis in Europe

The comparison with other European nations underscores the severity of the energy crisis in the UK and in the Czech Republic (Figure 3a). Both countries rank among the most affected in terms of energy inflation, similarly to the Baltic countries and other Central and Eastern European countries, highlighting the widespread impact of the crisis across the region. United Kingdom had in fact the highest energy inflation in Europe between February 2022 and February 2023, at almost 53%.

Czech Republic had a lower energy inflation than the UK, being the fifth highest in Europe during this period. However, it is important to note that having the highest energy inflation does not immediately translate into the country’s households being the most affected. Households across Europe spend a different share of their income on energy, use different energy sources and differ considerably in their net incomes. Therefore, while the UK had the highest energy inflation, it was not the most affected country in Europe, and Czech Republic was in fact the more affected country (Figure 3b). Czech Republic households lost on average 3.5% of their disposable income solely due to the rising energy prices, while this was only 2.4% for the British households.

Figure 3: The 15 European countries with (a) the highest annual energy inflation rates and (b) the highest household financial losses from energy inflation as a share of income, between February 2022 and February 2023.

Similar to the Baltics and other Central and Eastern European countries, Czech Republic relied heavily on gas imports from Russia before the war. However, throughout 2022, the Czech government focused on eliminating its reliance on Russian gas, reducing this to only 4% in summer 2023. As such, the energy prices in Czech Republic peaked in early 2023 and are since on a more optimistic downward trend.

Energy crisis in the Czech Republic

Looking at the Czech energy inflation at a more granular level, the disaggregation across different socio-economic groups revealed stark differences between households. While the average household faced an annual energy inflation of 35%, certain groups, such as pensioners, single-parents, and those residing in smaller towns, experienced higher-than-average energy inflation rates (Figure 4). Czech pensioners faced an energy inflation of over 42%, significantly higher than the 32% faced by employees. Similarly, single parents suffered from an energy inflation of over 38%, compared to 30% of two-parent households. These figures underscore the severity of the crisis and highlight the disproportionate burden placed on vulnerable segments of the population.

Figure 4: Percentage annual increase in Czech energy prices by consumer socio-economic group, between February 2022 and 2023.

In absolute terms, Czech households witnessed a substantial loss in disposable income due to energy inflation alone, with the average household losing 18 010 Czech crowns (about ₤625 annually[1]) annually. This corresponds to an average loss of 3.5% of the households’ yearly disposable income, purely due to the rising energy crisis (Figure 5). The consumer groups that were overall the most heavily affected by the energy crisis were pensioners (lost 5.7% of their income), poorest households (4.6%), single parents (4.6%), and residents in rural areas (4.1%).

Figure 5: Financial losses as a share of income across Czech socio-economic groups due to energy inflation, between February 2022 and February 2023.

Implications for policymakers

In light of these findings, policymakers in the Czech Republic and in the UK were urged to adopt targeted support measures, aimed particularly at the most vulnerable socio-economic groups, in order to mitigate the inequalities amplified by the crisis. The European governments have implemented various measures to mitigate the crisis, such as reducing energy taxes and providing subsidies (Table 1).

Table 1: Energy policies implemented to mitigate the effects of the energy crisis

Apart from the immediate policy action, long-term structural changes are recommended for both the Czech Republic and the UK, to enhance energy efficiency, resilience, and promote energy-saving approaches by the households. These longer-term changes include incentivising investments in household energy-saving technologies (such as smart appliances, triple glazing, electric vehicles, or solar photovoltaic panels), implementing building standards, and promoting behavioural changes through awareness campaigns. Policy instruments, such as pro-environmental building standards or certificates of energy savings (i.e., white certificates), have been shown in the past to have positive distributional outcomes. These positive distributional policy outcomes may include reduction in the share of household expenditure on energy, decrease in the emissions per capita, as well reduction in inequality between small and large producers. Therefore, such implementation of energy-saving policies by the European governments can not only mitigate the immediate impacts of the energy crisis, but also pave the way for a society that is both more resilient to future energy shocks and more environmentally sustainable.

[1] The average exchange rate of 2022 has been used, at ₤1 = 28.82 CZK.

The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.


Dr Filip Mandys

Research Associate

Dr Filip Mandys is a Research Associate at the Bennett Institute for Public Policy at the University of Cambridge. His research focuses on the drivers of productivity in key sectors...

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