Energy poverty spreads across society

Energy poverty: a term most people did not hear of until last year, but it is now in the newspaper on an almost daily basis. Unfortunately, though, since the term is associated with a relatively high share of someone’s income being spent on energy consumption. This phenomenon has become a reality for an increasing share of households over the last year. But what does it mean? And would you also fall under this classification?

There are multiple ways in which energy poverty is defined. In developing countries, the term is mostly related to being connected to energy sources at all and the use of safe energy sources. In countries where most people are connected to a stable energy source, the term is more linked to the ability to finance energy and what the financing of energy means for your overall spending pattern. As described by Thomson et al. (2017), there are generally three ways in which energy poverty is defined in the literature. First, there can be a self-reported measure based on how well the household can secure a decent level of energy use in their home. The second would be a direct measure that tries to estimate whether this same sufficient level is met. The third, and most common approach, is to use an expenditure-based method. In this case, energy expenditure as the share of total income is measured; usually, 10% would be seen as a threshold for energy poverty.

For instance, the graph below uses this metric for UK households. We can see that the share of income that households spend on their energy bill has decreased over time and has been relatively stable for more than 30 years. However, the current surge in energy prices has led to a sharp increase in the share of ‘energy-poor’ households.

Note: home + vehicle = domestic gas, electricity and other heating fuels (oil, coal), as well as domestic vehicle fuels (petrol, diesel).
Source: Carbon Brief based on BEIS data

Although it correlates with overall poverty, it is not the same thing. Energy poverty can occur in all income groups, as it is mainly linked to the energy efficiency status of the home. Especially under current energy prices, a low energy efficiency status can create a substantial cost for tenants.

With winter approaching, the number of households suffering to pay their energy bill and/or heat their home is expected to be at a historically high level. To help households through the coming winter, targeted support measures are of high importance. Additionally, to increase their overall resistance to a change in the energy prices in the future and ensure a better long-term financial situation, investment in energy efficiency retrofits of homes would be even better. Governmental policies that can provide financial support for those that are not able to make these investments themselves would be a wise decision. Additionally, an incentive for landlords to improve the energy efficiency of their rental apartments can improve the situation for renters.