The global experience with the coronavirus crisis is shining light on the precariousness of everyday life for low-income and vulnerable households. As we are forced to stay at home, higher household energy bills put further pressure on already stretched household budgets. The pandemic is also reminding us that good outcomes for all rely to a great extent on good outcomes for each and every one of us. This sentiment is closely echoed in the European Commission’s communications on the green transition, “it must work for all, or it will not work at all.”
Green and fair economic recovery
As European Commission President Ursula von der Leyen commits that the Green Deal will be Europe’s “motor for the recovery” after Covid-19, the pledge to make Europe’s response to the climate crisis “just and inclusive” is more important than ever.
To this end, the European Green Deal package includes a Just Transition Mechanism, designed to support economic transition, job creation and reskilling in regions that rely on coal and carbon-intensive industry and, therefore, will be hit hardest as a result of decarbonisation. But justice in transition must be delivered for all citizens, not just those in designated transition regions. How social justice is served for all citizens, across every region, is more complicated to achieve and yet less tangible in the Green Deal package than support for transition regions. We need to ensure that all citizens contribute to the costs of the transition in line with their ability to pay and that the benefits can be enjoyed by all, with special focus on low-income households across Europe.
Social justice and climate justice are interdependent
Policymakers need to examine all transition policies carefully through a distributional lens, one that considers who pays and who benefits. Assessment of the impact policies will have on all citizens, poorest to richest, rural dwellers and urban, young and old, too often happens only after their introduction. As we learned last year from les gilets jaunes protesters in France, these assessments and clear communication of the findings are absolutely essential to bringing all citizens along with the energy transition.
Who pays and how
Costs of clean energy policies that are passed on to consumer energy bills need special scrutiny. Unlike taxation, which is generally structured so that the richer pay more, funds raised through energy bills increase the cost burden more for low-income households. In a new report, the Regulatory Assistance Project (RAP) takes a hard look at the costs and benefits of clean energy policies paid for through household energy bills.
How costs of energy infrastructure and clean energy policy costs on consumer bills are shared among different types of energy users and within user groups is key to their distributional impact. When individual groups of users, for example energy-intensive industry, are exempted from contributing to policy costs, it places a greater cost on other groups. Not only does this undermine the “polluter pays” principle but it places a greater share of the costs onto households.
The use of exemptions for industry has received significant media attention, with large figures catching headlines, but the way costs are shared within consumer groups — for example, among household energy users — can be at least as impactful but less widely discussed.
How the costs of energy infrastructure and clean energy programmes are distributed across similar types of consumers through their bills is complex and not always transparent. But they currently make up about 40% of the average European household energy bill. Broadly, costs are passed on to household bills using either a fixed charge or a fee per kilowatt hour. The choice between these two approaches matters if you use relatively small amounts of energy, as do most low-income households.
When the costs of infrastructure are passed on to consumers on a fixed basis, low energy users pay up to two and a half times more than high energy users per kilowatt hour for their use of the grid. Not only do they pay more than their fair share for the infrastructure, but a larger part of their bill is “fixed” so they cannot reduce it with changes to their energy use. Worryingly, the use of fixed charges to pass on network costs is growing in many EU Member States.
The benefits for low-income households that are able to take part in renewable energy and energy efficiency programmes are even greater than for their more well-off neighbours. Cash savings, health and comfort benefits can more than eclipse the costs on bills. Low-income households, however, face significant barriers to participation in these programmes, meaning that the benefits largely go to better-off households. In response, a number of European countries, including the UK, France, Ireland and Austria, have ringfenced support within their energy efficiency programmes for low-income households. Energy efficiency is the most cost-effective, long-term solution to energy poverty and to long-term bill reduction for low-income households. Other countries would do well to follow this lead.
Equally important, clean energy programmes do not just benefit those who receive subsidies to put solar PV on their roofs or insulate their homes. They benefit everyone but in largely invisible ways. These programmes reduce energy demand and increase renewable generation, helping avoid future system costs for generation, transmission and distribution. Avoided costs save money for all and can more than offset the cost of the programme. These invisible benefits need to be balanced against the costs.
Benefits before costs
Weighing up costs and benefits can feel like a paper-based exercise — one that overlooks when these impacts are felt by households. What matters for people suffering long-term energy poverty or the economic impacts of the coronavirus is that benefits can be felt today. Short-term measures such as social or bill support can help reduce the immediate cost burden of the energy transition, but we need ways to bring forward the long-term benefits of the clean energy transition to help those who are most disadvantaged now.
The clean energy transition needs to be just, not only for coal regions. “Clean” and “just” are interdependent, and Europe’s economic recovery must draw on both.
A version of this article originally appeared on FORESIGHT Climate & Energy.
Photo: Simon Pugh Photography