How do households react to a real cost shock? Evidence from the energy price crisis in Germany

The 2022 energy crisis caused gas prices to rise more sharply than those of other fossil fuels. This paper uses this natural experiment to examine how households adjusted their energy consumption and investment decisions in response to real cost shocks. We analyze both household intentions and actual behavior in the aftermath of the crisis. On average, households expected a 70 percent increase in energy costs on their next annual heating bill. While many initially planned to reduce their heat demand in response to higher expected costs, we find that this reduction was short-lived, with room thermostat settings returning to pre-crisis levels. In contrast, energy efficiency investments saw a significant increase, both in planning and implementation. This suggests that investing in home energy upgrades emerged as a major coping strategy for households.