This study analyzes Europe’s policy responses after the energy crisis after the Russian-Ukrainian war and examines the impact of policy measures on industrial production. Although the mild winter of 2022 resulted in lower-than-expected energy demand, and energy prices have stabilized since the end of 2022, there is uncertainty about the severity of the winter in 2023 and the war is showing signs of prolongation. While Europe is using the energy crisis as an opportunity for the green transition, Europe is also accepting that it will continue to use fossil fuels, including liquefied natural gas (LNG), for at least the next decade and possibly even longer. 

The fact that Europe can no longer rely on fossil fuel supplies from Russia has significant implications for Korea, which is a net energy importer, as it may be affected by the increasing demand from Europe in the international energy market. Analyzing Europe’s policy measures on energy crisis provides important policy recommendations for potential energy price surge in South Korea due to the additional international energy demand. 

Chapter 2 explores the background of the energy crisis in Europe after the Russian-Ukrainian war, and explores the link between rising energy prices and inflation.

We analyze the various policies implemented by the national governments of three European countries to mitigate the impact of the energy crisis, namely Germany, France, and the United Kingdom. The study demonstrates a significant increase in energy prices, providing justification for the implementation of national policy measures. We show heterogeneity across countries, including dependence on Russian energy, available fuel types, and the different institutional contexts, and further investigated the policy packages in each country. In France, the impact of rising energy costs has been relatively small, and the main policies were tax reductions on energy Imposing price caps. In Germany, tax cuts and universal household assistance were the main policy measures, with additional subsidies for energy-intensive industries. The U.K. government utilized targeted support unlike other countries, leveraging its administrative capacity. This targeted support encompasses providing cash assistance for vulnerable households and granting automatic discounts on household energy bills. 

In Chapter 3, we use information on the timing of the introduction of energy crisis policies in major European countries to analyze whether these policies were meaningfully related to industrial production. Using fixed effect models and policy timing to reduce electricity prices in Germany and France, we examine the correlation between the industrial production index and energy crisis policies through their impact on energy prices. Our findings indicate that the policy intervention was positively correlated with industry production. By employing two-stage least squares regression, we find that the policy implementation was negatively correlated by approximately 40-euro reduction of wholesale electricity price, and 100 euro increase in wholesale electricity price was correlated with reduction in industry production index by approximately four percent relative to the average industry production within the sample period. Additionally, we also conduct heterogeneity analyses to investigate the potentially different correlation between the energy crisis responses and energy-intensive industries, but our analysis does not yield conclusive evidence of significant heterogeneity across different industries.

From our analysis, we recommend that the energy crisis policy should prioritize assisting the most vulnerable consumers. Imposing a cap on price growth or reducing energy prices or taxes can result in price distortion and regressive taxation. In the event of an energy crisis, we suggest implementing targeted policies that benefit low-income households to optimize the government's budget efficiency and protect vulnerable households. In order for this policy option to be administratively feasible, the government must possess the capacity to identify eligible households and have streamlined procedures to efficiently deliver assistance without imposing excessive institutional barriers for applicants. In South Korea, Energy Voucher Program is limited to certain types of low-income families such as single mothers, the elderly, and other public assistance recipients, and the categorical eligibility should be expanded to include other low-income households that do not fall within these categories. If there is any consideration for implementing price reductions on energy, we suggest implementing price brakes to incentivize the reduction of energy demand and encourage more efficient energy utilization.

This study provides valuable insights to the existing body of research by examining the relationship between energy crisis response policies and industrial production in the context of recent events such as the Russian-Ukrainian war and the energy crisis. To optimize the utilization of government resources, it is recommended to investigate this issue by analyzing firm-level data and actual energy prices paid by companies. Such approach can provide more informed policy recommendations for industries facing significant challenges due to high energy costs.