Energy Poverty and Households’ Reaction to Carbon Pricing: A Behavioral Model Using Belgian Data

This paper investigates the behavioral and welfare impacts of carbon pricing on energy-vulnerable households in Belgium. We focus on two distinct groups: energy poor (EP) households, who spend a large share of their income on energy, and hidden energy poor (hEP) households, who spend very little on energy, suggesting severe self-restriction. Leveraging eleven cross-sections of the Belgian Household Budget Survey, we estimate a Quadratic Almost Ideal Demand System with demographic controls to simulate household responses to energy price changes under the forthcoming EU ETS 2 reform. Our analysis shows that hEP households - despite their low observable energy use - suffer disproportionately high welfare losses. In contrast, EP households face higher tax burdens but experience comparatively smaller welfare impacts. Both groups display greater price sensitivity - particularly for heating fuels and transport - than the general population, with income emerging as the primary driver of this responsiveness. Logistic regression results further highlight key structural differences between EP and hEP households in terms of housing characteristics, heating systems, and regional location. These findings underscore the importance of integrating different vulnerability profiles into carbon pricing assessments, enabling the identification of horizontal equity concerns that are often overlooked in income-based analyses.