["Journal of Money, Credit and Banking, EarlyView. ", "\nAbstract\nWe investigate monetary policy transmission and energy saving incentives in response to rising energy prices. We add energy in consumption and production, and energy conservation capital, to a tractable New Keynesian model with heterogeneous agents, unemployment risk, and nominal asset holdings. We find that monetary policy influences the energy conservation through both unemployment risk and asset returns; energy price shocks intensify monetary policy trade‐offs in terms of stabilizing inflation and output. A weaker policy response is beneficial in terms of agents' welfare despite higher inflation. The Ramsey policy predicts a strong rise in the policy rate with a decline afterward."]