Vulnerable Households in the Energy Transition

The massive rise in energy prices in the wake of the Ukraine crisis and the Western sanctions against Russia is putting a great strain on the economy and consumers. Germany is particularly dependent on Russian energy imports. With the desire to reduce dependence on Russian imports, the pressure for climate neutrality is intensifying. The reports of the IPCC recently show again the high pressure to act. The EU is aiming for climate neutrality by 2050, and Germany would like to reach the target by 2045.

This chapter aims to examine the macroeconomic effects of the drastic price increase for energy sources in Germany. For this purpose, a scenario in which energy prices on the world market experience a significant shock is compared with a reference scenario until 2030. The scenarios are implemented in the economy–energy–environment model PANTA RHEI. The scenario comparison shows the different effects of energy price increase on important macroeconomic variables such as price level for consumers, GDP, and employment. Distributional effects across income classes are considered with particular attention to low-income households, which spend higher shares of their income for energy and cannot afford to pay for energy efficiency improvement. A brief comparison with other modelling studies shows that climate mitigation has a positive effect on the economy as a whole and can be an important lever for containing the losses caused by the current high energy prices.

Structural changes in the population are bound to be intertwined with the energy transition in determining the evolution of household energy consumption. Most countries are characterized by shrinking total population, very fast ageing and smaller family size. These demographic shifts could enlarge the group of vulnerable individuals who are suffering for energy poverty. Being a single parent or living alone, having an increasing number of elderly or individuals with specific needs related to illness and disability in the family, significantly increases the chances of facing energy poverty. When studying the drivers of future energy demand, demographic shifts represent a crucial factor although they are usually overlooked in the estimated long-run projections of energy use which mainly takes into account only the population size. In this chapter, we summarize how demographic change is interlinked with energy transition with an analysis of the main issues related to changes in the composition and the age structure of the population and their effects on the future paths of energy consumption in Italy. Then we focus on the vulnerability of the elderly and on its main specific drivers as the affordability of energy expenditures and the energy efficiency of buildings and equipment. Moreover, we briefly look at the consequences of limited access to energy services on the social activities of the ageing population. Finally, price and income elasticity estimations add further evidence on the role of age and generation in household energy consumption. These findings are relevant in understanding how the expected structural demographic changes may affect the future trend of energy poverty.

We highlight the causal effect of energy poverty on health in France. After collecting original data from 5000 individuals, we first statistically study the correlations between different pathologies and different aspects of energy poverty. Then, using econometric models, we quantify the causal effect of energy poverty on physical health and mental health scores, and also on the risk of occurrence of certain pathologies. Our data show a significant difference in health status between energy-poor individuals and energy-sufficient individuals. Results confirm that falling into energy poverty significantly degrades health scores. Being in energy poverty reduces the World Health Organization’s (WHO) physical health score by 8.14 points. The negative and significant effect on the mental health indicator is 3.78 points. When individuals are in a situation of energy poverty, their self-assessed health scores are on average 3.37 points lower than individuals who are not energy insecure. In addition, individuals living in dwellings with poor roof insulation, humidity, or mold suffer more frequently from chronic disease or psychological distress. Finally, it appears that reducing energy poverty by 1% would save about EUR 476 million. Regarding mental disorders, this could rise to EUR 10.6 million.

Environmental taxes and oil market fluctuations can increase road fuel prices significantly and are likely to play a big role in the future. This raises social justice issues, as some low-income households rely on cars for access to services and opportunities but struggle to afford related expenses. The impacts of fuel price increases are unevenly spatially distributed, as shown by transport, planning and urban research. We investigate spatial patterns of vulnerability to fuel price increases in Italy, a country where the problem is particularly pronounced due to high motorisation rate relative to income, and high fuel prices. We define vulnerability as the combination of high exposure (high car use), high sensitivity (low income) and low adaptive capacity (high car dependence). Based on municipality-level data on motorisation and the journey to work from the 2011 Italian Census and official income tax revenue data for 2012 (as a proxy for income) we derive a composite indicator of vulnerability. The results show: i) a co-location of low-income and high car use on the periphery of many Italian city regions; ii) stark interregional differences, with lower income levels in the South driving high levels of vulnerability, despite lower levels of car ownership and use.

Links between gender, poverty, and energy have been hinted at in many studies mainly focused on livelihood strategy and economic development of low income, showing that the consequences of energy poverty may vary between women and men mainly because women are more exposed to deal with energy-related activities. At the European Union, where more than 50 million people are unable to afford proper indoor thermal comfort, the main research constraint is the lack of publicly access to gender-disaggregated data on energy poverty. This chapter contributes to literature on the gender–energy–poverty nexus, providing a quantitative analysis of the gender differences in energy consumption from a longitudinal perspective to empirically support previous studies on the topic. We focus on Spain as a case study, by using longitudinal data from Spanish Household Budget Survey from 1998 to 2018. To better analyze the gender effects, we study the energy consumption patterns of female and male breadwinner households as well as female and male one-person households. We also apply an Ordinary Least Square regression model to analyze the significance of gender and expenditure level considering the expenditure on residential energy and transport fuels and controlling for other household characteristics.

Increasing carbon taxes have the potential to disproportionately affect lower income households, who lack the financial and decision-making capacity to undertake investments to shift the underlying energy system. Carbon tax redistribution schemes aim to equalise the negative impacts experienced especially in lower income households and tenants. Through the development of a dedicated energy system optimisation model, our assessment evaluated the distributional impacts of carbon tax redistribution schemes on the evolution of energy use, emissions and energy welfare in different household types in Germany.

Since the second half of 2021, Italian households have experienced a significant increase in energy prices. Nonetheless the relevance of this issue, information on energy use and how quantity reacts to price increases is still scant and with a very limited level of disaggregation. We propose a novel methodology to estimate the demand and elasticity of electricity, heating and private transport fuels by aligning the microdata of the Italian Household Budget Survey with several external sources. These estimates can be used to assess how energy expenditure weighs on vulnerable households and the effects of a carbon tax. A carbon tax would—as expected—raise significant revenues and curb CO2 emissions but it could also have sizable regressive effects. In order to limit these undesired effects and to increase social consensus, policymakers should devise a set of suitable revenue recycling strategies.

The access to energy services could still represent a relevant problem in developed countries: an EU-wide survey concluded that in 2020, 8% of the EU population said that they were unable to keep their home adequately warm.

When talking about energy poverty, its definition is a crucial element, also for its linkage with policy strategies. At EU level, a unique definition does not exist and the European Energy Poverty Observatory provides several consensual and expenditure-based direct indicators, as well as indirect ones. In Italy, the National Energy Strategy in 2017 has introduced a Low Income-High Cost measure, which has been employed also in the National Energy and Climate Plan.

Several policies to mitigate energy poverty exist in Italy: some have social nature, such as electricity and gas bonuses, and other could provide a structural solution by means of energy efficiency investments, as the Ecobonus incentive scheme. The effectiveness of a well-consolidated energy efficiency policy in mitigating energy poverty is assessed, at the same time investigating its distributional implications. The access to this mechanism is analysed at regional level and for different intervention areas, in order to identify the potential existence of a regressive pattern.

Low-income population groups often face high energy poverty risks. This phenomenon can be exacerbated through the implementation of ambitious environmental policies to achieve the energy transition—said policies, such as the application of additional taxes on energy products, may lead to regressive social and distributional impacts on low-income households thus increasing the risk of energy poverty. This study focusses on Greece and combines a qualitative analysis of the EU and Greek policy context and strategic framework for energy poverty as well as related poverty alleviation measures with a state-of-the-art model-based assessment of the equity and distributional impacts of the net-zero transition in the country. We use the GEM-E3-FIT general equilibrium model, expanded to represent ten income classes differentiated by income sources, saving rates and consumption patterns. The new modelling capabilities of GEM-E3-FIT are applied to quantify the distributional impacts of ambitious emission reduction targets and at the same time explore their effects on energy-related expenditure and energy poverty by income class in Greece. The country’s transition to climate neutrality increases modestly the income inequality across income classes, with low-income households facing the most negative effects. However, using carbon tax revenues as lump-sum transfers to support household income and as reduced social security contributions have the potential to boost employment and scale down income inequality in Greece.