Priming the pump

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As the second energy crisis in five years enters its third month, the number of countries introducing measures to protect consumers is growing rapidly. So far, 39 economies have have implemented at least one measure designed to shield households and firms from the current spike in energy prices according to the International Energy Agency's (IEA) Energy Crisis Policy Response Tracker.

European governments (19 countries so far) have been quickest to respond to the crisis by attempting to curb the price impact, while nine governments in Asia have implemented similar measures. Most interventions take the form of price support, such as cuts to fuel taxes, deferring tax increases, or introducing subsidies. Alternatively, governments use price interventions to limit price increases (for example, by capping the retail price of fuel), or directing extra support to vulnerable, low-income groups. Fewer than a quarter of interventions are designed to be both temporary and in support of sectors highly exposed to fuel price hikes.

The problem with many of these measures is that they also increase the fiscal burden on governments, disincentivising consumers from becoming more energy efficient, or investing in alternatives that are cheaper, cleaner, and otherwise more sustainable. The latest energy crisis is fundamentally a supply disruption, not only a price shock. By dampening the market signal - subsidising or otherwise capping energy prices - the market fails to clear, making shortages more likely, not less. In contrast, only three countries in Europe have introduced measures to curb consumption, compared with 19 in Asia.

All the while, government meddling in the markets merely postpones the moment of reckoning until the next energy crisis arrives.