The latest OECD report says that carefully designed carbon pricing reforms can tackle climate risks while improving the affordability of energy for poor households. The impact of energy taxes on the affordability of domestic energy uses household level data covering 20 OECD countries to analyse energy affordability at current energy prices and explores how these indicators change in response to a simulated energy tax reform. The report finds that higher energy prices needed to cut harmful carbon emissions and air pollution can also help achieve social policy objectives.

Carbon pricing reforms that cut CO₂ emissions mean higher energy prices, which is a particular threat to poor households as they typically spend a large share of their income on energy bills. However, energy affordability for poor households can be increased by well-designed carbon pricing reforms. The OECD’s report finds that transferring a third of the additional revenues from an energy pricing reform to poor households would be sufficient to increase their ability to pay for their energy needs.