New findings reveal fossil fuels are key drivers of recent inflation in France

New Cambridge Econometrics analysis for the European Climate Foundation explores the role of energy prices in recent consumer price inflation in France, with a view to understanding the potential for faster energy transition measures to ease inflationary pressures and risks. 

Cambridge Econometrics analysed energy system and inflation data from a variety of sources to understand the role of energy prices in French consumer price inflation. The report also takes stock of France’s wider energy transition strategy, the French government’s response to the recent energy price increases and discusses how the future energy system can better protect consumers from sudden price hikes. 

Key findings

Fossil fuels are key drivers of recent consumer price inflation in France

  • In May and June 2022, fossil fuels alone (transport fuels and gas) accounted for nearly 40% of France’s annual rate of inflation. Between August 2020 and August 2022, household energy prices increased by 37%, whilst the overall level of consumer prices increased by 9.2%.

The increases in household energy prices make an average French household €410 worse off in 2022 compared to 2020, mostly due to higher gas prices 

  • The poorest households in France now spend roughly a third more on energy than in 2020.
  • In response to rising energy prices, the French government has adopted price caps and support measures forecast to cost over €71bn, equivalent to 2.9% of French GDP.

Renewables are now much cheaper than fossil fuel-based electricity production, and their cost is forecast to fall further  

  • A further expansion of renewables therefore appears the right policy choice to increase energy independence, reduce the exposure of domestic consumers to global market prices, and bring down electricity prices in the long run.  
  • The rapid deployment of renewables is particularly important to counterbalance falling electricity production from France’s nuclear fleet over the coming decade.  
  • An accelerated expansion of renewables should be coupled with increased electrification of transport, industry and heating, which would further reduce household and business consumers’ exposure to volatile fossil fuel prices. This would limit the need for costly government intervention during times of high fossil fuel prices. 
Carl Heinemann Managing Economist [email protected]