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Climate and Energy

Why is Energy Poverty Still an Issue?

By Katalin Csiba

Hard to imagine though it is, there are still people in Europe in 2016 who are compelled to choose between heating and eating during wintertime. It is the bitter reality in one of the most developed economies of the world, the European Union. The countries that suffer the most are not the ones with cold climate in the North, but those with old and inefficient building stock, a largely privatised rental sector, weak social protection and services, and above all low household income in relation to energy prices. Only an integrated and complex policy approach, in which energy market regulation and social support work towards the same goal, can solve this problem.

What is energy poverty?

Energy poverty is a special type of material deprivation wherein a household is unable to consume the adequate amount of energy to maintain a decent standard of living at a reasonable cost. The term used to focus on heating as it is the largest portion of energy consumption costs, but today definitions tend to also include cooling, lighting, water heating, cooking, refrigerating, or even transportation fuel costs.  Energy poverty has devastating consequences for individuals and for society as a whole. The main direct health impacts of cold homes are not only hypothermia, but injuries due to falls, respiratory diseases, influenza, heart attacks, and stroke which may be experienced long after exposure. Studies of the psychological consequences of cold homes include an increased risk of diagnosable anxiety and depression. The society is adversely affected as energy poverty contributes to the intergenerational transmission of poverty as children go home and study in under-heated and under-lit homes. Elderly people, children, single parent households, people living alone, or those with disabilities are the main groups experiencing energy vulnerability. Many feel embarrassed asking for help therefore the real impact of energy poverty is probably larger than estimated today.

There are EU indicators sufficiently describing energy poverty and comparing countries in that regard, but they are unable to identify individual households in need. The EU Survey on Income and Living Conditions (EU SILC) measured in 2013 that 10.7% of the EU population (54 million EU citizens) were unable to keep their home adequately warm. Roughly the same number of people had arrears on utility bills and even more, 15.6%, of the EU population lived in dwellings with leaking roof, damp walls, and inadequate conditions. These numbers have not since changed significantly.  Even more concerning is that they have not fundamentally changed since 2010, even though the EU is committed to reducing the number of people at risk of poverty or social exclusion (a  group overlapping a lot with those experiencing energy poverty).

There are many reasons why we need to tackle energy poverty separately from poverty in general. First of all antipoverty measures are very often benefit driven which in the case of energy poverty is more of a short term solution, even if low income is indeed a major factor behind energy poverty. But energy poor households experience difficulty often because their house or apartment is poorly insulated or the electrical and gas appliances are very old and inefficient. Tackling this problem would be the long-term solution but this also requires a larger up-front investment. Another practical reason to define energy poverty separately from poverty is that the available EU funding is significant for energy efficiency renovations, but they are not always channelled towards the households most in need. These households should be the priority until the number of energy poor households is reduced to zero. We need to be able to clearly identify those households, taking into account the income level and the energy expenditures of the household taking into account the energy efficiency of the dwelling. There are academic studies on the advantages and disadvantages of different approaches so lack of knowledge should not stop municipalities, counties, Member States, or the EU to establish an effective definition based on the available data or on data that should be collected.

What are the most effective policy tools to tackle energy poverty?

A wide variety of tools are available, but the key aspect is an integrated approach involving both energy policy and social policy. In other words, if the Ministry of Social Affairs is doing its best to protect vulnerable households by introducing counselling services and providing targeted benefits yet the Ministry of Energy  oversees energy providers cutting off households with arrears and forgetting to reconnect them in winter the overall effect will not be significant.

Social tariffs

Some Greens would argue that reduced energy prices create a harmful incentive to over-consume instead of being energy efficient. However, targeted social tariffs would mean that energy prices can be progressive and households with low income would not be disproportionately penalised for being poor. Free market proponents regularly attack such measures, but it is a very efficient tool to keep energy poor households out of the debt cycle and keep their budget balanced until they are able to increase household income and gain back their purchasing power.

Protection of vulnerable consumers

Most of the Member States have some sort of protection preventing disconnection due to non-payment during wintertime (except Bulgaria and Czech Republic), but in practice they are often ineffective. Households are sometimes disconnected due to non-payment during the unprotected period and if they cannot pay the arrears. At the end of the day households are still left without heating services over the wintertime despite disconnection safeguards. However, some measures allow indebted households to switch to service providers with more favourable tariffs despite being indebted (DK, FR, LU, UK).

Energy efficiency

Energy efficiency renovations are the best long term solutions for energy poverty. More and better targeted funding is needed. We also have to bear in mind that a large part of vulnerable consumers live in social housing where the so called split incentive problem between the owner and the tenant is a real challenge. The Netherlands and the Scandinavian countries are the flagship Member States in social housing sector energy efficiency retrofits. On the other hand some of the Member States have virtually no social housing sector and the financing should be designed for the private rental sector. We should also make a note that social housing is probably the best and most efficient way of supporting low income families therefore developing them should be the priority in every Member State.

Counselling and sharing information

Providing adequate information to vulnerable consumers is critical. Regulators and civil society are the key actors. Vulnerable households often do not have enough information and are not prepared to negotiate with the service providers. Where civil representation and counselling is provided, vulnerable people are better-off and handle their debts much better. In some countries NGOs are fighting for more smart meters, more informative energy bills, and direct notifications when better energy prices become available on the energy market.

Best practice from across the EU

Initiatives work best if they involve the local community and civil society. For example, a five year project (REELIH) of Habitat for Humanity International financed partially by USAID is testing and introducing multiparty financial schemes in Armenia and Bosnia and Herzegovina to facilitate renovations for low income households. The ACHIEVE project is a Commission financed project operating in five European countries and developing consulting programs for vulnerable consumers, and distributing energy and water saving appliances to help them reduce their utility bills. Advice is an essential tool in supporting the households concerned. Another successful non-governmental initiative is the Social Housing Reconstruction Camp in Hungary that provides help for tenants living in run-down social housing and often struggling with debt. They help the tenant to organise their own renovation with the help of experts and further volunteers.

State of play

The words of Energy Union Commissioner Maroš Šefčovič are very encouraging: “That we have to monitor it [energy poverty], and that we have to work jointly on how we are going to tackle it. That’s something what was not so obvious just a year ago.” However, the lack of intention of the Commission to create an EU framework definition standardising at least the major elements of a definition to be created by Member States is disappointing. However, the Commission has published a call for tender to establish an Observatory on Energy Poverty that will monitor the European situation, as well as provide technical assistance. Hopefully we will see the result of this procurement soon. The Commission is also active in publishing on the subject, such as a feasibility study to finance low-income households’ energy efficiency investments. Insight-E, which is a think tank advising the Commission, has also recently released a paper on the assessment of disconnection safeguards, social tariffs, and financial transfers. Beside all the essential theoretical work, the Commission should propose clearer mandates on prioritising energy poor households during energy efficiency policy provisions and financial targeting of funds, for instance in the current framework of ‘Clean Energy for All Europeans’ package released in November 2016. Unfortunately energy poverty and vulnerable consumers are not in the frontline of this initiative and it might miss a rare opportunity to tackle the most urgent political imperative across the EU: rising inequality. As the Handbook on Energy Poverty [1] details: “mechanisms could include the Energy Efficiency Directive mandating a percentage of funding in this area to tackling energy poverty through energy efficiency refurbishments in low income households. (…) These funds should also be targeted towards Member States in Central and Eastern Europe, and Southern Europe, where the problem is most entrenched”.

 

[1] The Energy Poverty Handbook is a recent publication of the office of MEP Tamás Meszerics member of The Greens/EFA group. The selected articles describe the different aspects of energy poverty, provide policy recommendations and introduce grass root good practices from different corners of Europe. The Handbook is designed to provide all the background knowledge that activist and politicians need to know to fight for better regulation and all the references to the most recent academic findings to support advisors and experts to develop further ideas and tools to tackle energy poverty.

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Why is Energy Poverty Still an Issue?

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