Getting off gas: Future risks for energy poor households

If you are in pain, you go to a doctor who prescribes a painkiller. This cheap, proven and readily available treatment relieves your pain and temporarily solves your problem. However, if you continue to take the pills, you risk the considerable downside of long-term reliance without addressing the cause sustainably.

For many UK households experiencing energy poverty — where a household is unable to access or afford sufficient energy services to meet its needs — their prescription has been a gas boiler.

Energy poverty programmes in the UK have relied heavily on providing efficient gas boilers, in some cases converting direct electric heating or installing new gas heating systems, to reduce energy costs and warm up homes. Pilot programmes have even seen doctors “prescribe a boiler” by referring households into an energy poverty programme. Gas regulation also supports new connections to the gas grid for low-income households through a commitment to socialise the costs of these connections.

Like a pill prescribed for your pain, connection to gas is relatively cheap, proven, available — when publicly funded — and provides immediate relief in terms of lower bills and warmer homes. But, like medication, reliance on gas in the long term, and the difficulty in getting off gas, poses a huge risk.

At what point does prescribing a gas boiler do more long-term harm than good?

In specific situations, symptoms are so extreme that using gas to provide temporary relief is justified, coupled with a long-term plan to transition away. Poland is a notable example, where the air quality crisis brought on by burning coal for home heat seriously affects public health. As a more general rule, new gas connections can tie households into an unpredictable future.

Route maps to decarbonisation point out that the future of domestic heat is electric or district. Government incentives and clean heat programmes encourage better-off households to move away from gas to renewable heating systems. But we have to ask ourselves if we are leaving low-income households behind in the energy transition and locking them into dependence on gas that leads to high costs or uncertainty? At what point does prescribing a gas boiler do more long-term harm than good?

A crystal ball for the cost of gas

Gas is, on average across Europe, three to four times cheaper than electricity per kilowatt-hour for households. Of the final cost of gas, the price of the fuel accounts for around 50% of the average bill; the other half is divided between infrastructure costs and taxes. I won’t try to predict future gas prices and their fluctuations across Europe, but the following insights allow for speculation.

Many European countries are already implementing a future which is much less reliant on gas. A number of Member States have policies which prevent the use of gas heating in new homes — like the UK or Ireland — or aim to wean all homes off gas entirely, like the Netherlands. These sticks, along with the carrots of renewable heat incentive programmes, create a future in which smaller numbers of households are connected to a country’s gas infrastructure. A smaller number of users means each household would need to pay a greater share of the infrastructure costs.

Furthermore, timescales for infrastructure investment are long. Yet, as households move away from gas, large parts of this infrastructure will become redundant. Therefore, gas companies need to recoup infrastructure investment over a shorter period of time. Fewer users and a shorter timeframe over which to spread the costs mean higher costs of infrastructure for each household that remains on the gas grid.

Soon, we will need to start enabling low-income households to decarbonise, not just reduce fuel costs in the short term.

As for the fuel itself, according to its carbon content, gas is underpriced. Electricity bills often shoulder more of the costs of carbon than gas. This is largely due to the price of carbon in the EU Emissions Trading Scheme, which adds to electricity prices, not gas. If the current European Green Deal proposals — to extend the Emissions Trading Scheme to buildings and better align the Energy Taxation Directive with the carbon content of fuels — go ahead, the carbon price added to gas will rise, and with it, the cost of gas.

Uncertain cost of future fuels

The future cost of fossil gas and its replacements is the million-dollar question.

As demand for fossil fuels in the next decades drops, we can expect the wholesale price of fossil gas to fall. This has been seen, in an extreme way, during the coronavirus lockdown. The sharp retraction of industrial and commercial activity, and therefore demand for energy, contributed to rapidly falling wholesale gas prices.

But fossil gas is not the fuel of 2050. Hydrogen appears to be waiting in the wings to replace fossil gas in the grid. However, hydrogen is unlikely to be available in large quantities across Europe for home heating, as the available hydrogen goes first to those uses that rely on high temperature heat – which hydrogen can produce but electricity cannot. In the various 2030 and 2050 European decarbonisation scenarios, hydrogen for use in buildings is almost absent in 2030 and provides a small share of energy consumption in only some 2050 scenarios.

Importantly, projections show hydrogen will likely be significantly more expensive than a heat pump for home heating, and adapting to hydrogen will require upgrades of both the grid and home heating systems.

The availability and cost of hydrogen for domestic heat are at best uncertain. If low-income households are disproportionately reliant on gas, they will pay higher costs for infrastructure and be open to the uncertainty and price shocks of replacement fuels.

Ending the dependency on gas

Getting off gas will not be easy, and it will be harder still for low-income households who face greater barriers to electrification — the upfront cost of renovation and heat pump technology, lack of space in smaller homes for heat pumps and heat storage, and the lack of control over fuel choice in rented homes.

In our rush to alleviate energy poverty, the prescription of the cheap painkiller risks saddling households with a dependence that may cost them dearly in the long run. Soon, we will need to start enabling low-income households to decarbonise, not just reduce fuel costs in the short term. This means aligning decarbonisation and energy poverty strategies, and funding energy poverty programmes that provide clean heat solutions, or at least enable future electrification.

Promote clean heat for low-income households first rather than last.

A version of this article originally appeared in FORESIGHT Climate & Energy.

Transition to just

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.

Who benefits

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