Improving energy efficiency is key to moving toward sustainable development. It contributes to the reduction of energy consumption and carbon emissions, as well as to climate change mitigation. Indicators of energy efficiency play an important role in this field because their improvement is targeted by policy makers. Indicators based on the ratio between energy consumption and gross domestic product (GDP) are currently used by multiple key organizations, including Eurostat and the World Bank, as the main energy efficiency indicators. This study examines the most widely used indicators and identifies their deficiencies. Over the last decades, these indicators tend to show a continuous strong improvement, signifying positive progress toward energy efficiency, even in cases when the physical consumption of energy has increased significantly. This phenomenon is based on GDP adjustment. The energy intensity of economies, used currently to measure energy efficiency, masks problems and has led to the green labeling of wealthier economies. An analysis of energy efficiencies reported for multiple countries and the structure of their energy spending shows that the reported values are counterproductive for comparing economies in the context of environmental protection. The indicators sanction economies with low energy consumption and low or moderate GDP. The economies belonging to the group of the largest energy spenders per capita are labeled highly efficient because of GDP adjustment. Decision makers are therefore prompted to focus on GDP growth even at the cost of a major increase in energy consumption. An additional problem in the indicators is that they do not properly model international trade. The responsibility for energy spending is shifted toward the producers of energy-intensive goods and services. Energy intensity is a useful indicator to measure the resistance of an economy to the volatilities of energy prices. However, the challenges in the fields of environmental pollution and climate change are related to physical processes and energy consumption rather than to changes in the GDP or the monetary valuation of products and services. Indicators measuring energy efficiency as GDP per unit of energy use are inadequate and misleading as principal tools to measure energy efficiency.
The EU member states have implemented excise duties on fuel and electricity according to the EU Energy Tax Directive. The purpose of these measures is to motivate a reduction in energy consumption by internalizing external costs of energy. The taxes on energy have success in inciting energy savings. Simultaneously, the price levels of energy in the EU member states have increased to levels significantly higher compared to other countries in the region and the world. The price increase is the result of a cumulative effect of excise duties and other taxes and mechanisms including feed-in tariffs and quota policies. While the Energy Tax Directive gives the member states a level of freedom in setting the exact duty rates, the minimal rates enforced on all member states are relatively high. The policy intends to limit competition between the states on low energy prices and arbitrage trading between countries. We examine the purchasing power for energy products relative to the per capita GDP for a wide set of countries countries within the EU and in the rest of the world. We can identify several groups or clusters of countries based on their GDP per capita and energy prices. The new member states of the EU face a unique combination of low or moderate GDP per capita and very high energy prices. Their relative purchasing power for energy is degraded to levels comparable or lower than the purchasing power in developing countries with significantly lower GDP per capita and underdeveloped energy infrastructure. The calibration of energy taxation in the EU at high price levels suitable for Western European economies with high per capita GDP is leading to strong negative social effects and increasing poverty in Eastern European member states. The current implementation of these policies does not recognize to a sufficient extent income levels, regional social inequalities, and the low price elasticity of demand for energy.