By Jiayi Wang and Ragdad Cani Miranti
During a heatwave, temperature is measured in degrees. But the ability to live with that heat is measured in money, housing and choice. Europe’s summer of 2026 made that distinction difficult to ignore. During one severe week in late June, more than 10,000 excess deaths occurred across Europe as extreme temperatures swept the continent. Yet heat is not the same economic experience for everyone. Some households can afford cooling, better insulation or a higher electricity bill. Others cannot. The temperature may be shared; the capacity to respond is not.
From energy shock to unequal choice
Europe’s energy crisis began as markets tightened in 2021, before Russia’s invasion of Ukraine transformed those pressures into what the International Energy Agency called the first truly global energy crisis. The shock travelled quickly. Households faced higher bills, firms higher production costs, and governments responded through tax cuts, rebates and price caps. The cost did not disappear. It moved. Nor is there a single culprit behind high energy bills. In Britain, gas prices faced by firms were still 63% higher in real terms in early 2026 than in mid-2021. But network costs, taxes and policy levies also contribute to electricity prices.
Beneath this debate lies another inequality: not everyone has the same ability to respond. A homeowner with savings may insulate their property, install solar panels or buy a heat pump. A low-income renter in an inefficient flat may have neither the capital nor the authority to make those changes. Their adjustment may simply be to heat less or spend less elsewhere. This is an inequality of choice, what we might call exit inequality. The question is not only who pays more today, but who can reduce their exposure tomorrow. And exiting is itself expensive. Clean-energy technologies require large upfront investment, while the IEA estimates that the cost of capital for utility-scale solar projects in emerging and developing economies can be two to three times that in advanced economies.
The countries most exposed to future energy shocks may therefore also face some of the highest costs of financing their way out.
Between countries: exit inequality at national scale
A common assumption is that developing countries rely on expensive overall energy subsidies instead of more targeted assistance or investing in the fossil exit because they lack the data or administrative capacity to identify poorer households. Sometimes that matters, but it cannot be the whole explanation. Germany offers a useful counterexample. Despite having sophisticated tax and welfare systems, its government introduced a broad temporary reduction in petrol and diesel taxes in October 2026, worth around €0.17 per litre and €2.5 billion overall. The German case does not tell us why developing countries subsidise energy. Rather, it shows that broad price support can be a deliberate policy choice even where targeting capacity is strong.
Broad support can therefore be a political choice, not simply a capacity problem. It is fast, visible and easy to communicate during a crisis. Nigeria shows why this matters even more where trust in government is weaker. In 2012, the government attempted to remove its petrol subsidy, more than doubling the regulated price overnight. Nationwide protests and strikes followed, and the government partially restored the subsidy within two weeks. IMF analysis noted widespread concern that the savings would be wasted rather than used for ordinary Nigerians.
A cheap fuel price, in other words, can become more than an economic instrument. It can become a visible social contract. So, the real policy question is not simply whether support should be universal or targeted. A more useful distinction is between subsidising the price and supporting the person.
Iran’s 2010 subsidy reform offers another unusual example. The government sharply raised domestic energy prices but deposited compensatory cash into household accounts before the increases took effect. Close to 80% of the population initially had access to these payments, making the transfer itself almost universal. This was still broad support, but of a different kind. A fuel subsidy becomes larger the more fuel someone consumes, so households consuming the most often receive the largest absolute benefit. A fixed cash transfer does not work that way. It protects household income while leaving households facing the true marginal price of energy.
That does not make universal cash transfers costless: Iran’s programme later created fiscal pressures of its own. But it shows that universality itself is not necessarily the problem; what governments subsidise matters. The practical lesson is therefore about sequencing.
Governments should not jump directly from cheap energy for everyone to no support at all. A safer transition is: temporary price relief → credible household compensation → gradual price reform → stronger social protection. Egypt provides one example of this longer institutional process. When it began major energy-subsidy reforms in 2014, part of the fiscal savings was used to establish the targeted Takaful and Karama cash-transfer programme and improve social registries. The goal should therefore be not merely to spend less on subsidies, but to use reform to build a system capable of protecting people when the next shock arrives.
Conclusion
The next shock may not come only from oil or gas markets. A 2026 assessment across 28 predominantly Global South countries estimate that almost 600 million people face systemic cooling poverty, where extreme heat overlaps with inadequate housing, infrastructure, health services and access to cooling.
This brings us back to where we began. A household may lack the money to escape high energy prices. A government may lack the fiscal or institutional room to protect households when those prices rise. In both cases, vulnerability depends not only on exposure to the shock, but on the capacity to respond.
Decarbonisation is therefore not only a technological challenge. It is also a distributional and institutional one. Today’s bill matters, but so does tomorrow’s heat. Rather than repeatedly making energy artificially cheap, the longer-term challenge is to give households and governments enough room to respond when the next shock arrives.
Jiayi Wang is a PhD candidate in Development Economics at the Global Development Institute, University of Manchester. Her research focuses on green transitions, carbon pricing and industrial adjustment.
Ragdad Cani Miranti is a PhD candidate in Development Policy and Management at the Global Development Institute, University of Manchester. Her research interests include poverty and inequality and the use of big data to study economic and social issues.
Note: This article gives the views of the authors, not the position of the EADI Debating Development Blog or the European Association of Development Research and Training Institutes