From subsidizing energy to reducing dependence – Hans Dubois
The only real answer to energy price inflation is to reduce energy needs and dependence on fossil fuels, prioritizing those on low incomes.
On top of the huge human and material devastation in Ukraine, the Russian invasion and the resulting sanctions have caused energy prices across Europe to soar. Governments seeking to alleviate the negative impacts of price increases on households have introduced, among other things, energy subsidies and reductions of value-added tax for electricity, gas and fuel.
While such policies may be required to protect those most in need, subsidizing energy use is a short-term solution—a temporary, partial compensation which does not always reach those hardest hit. Subsidizing fossil-fuel energy use also clashes with the European Union’s aim to limit greenhouse-gas emissions and maintains its energy dependency on third countries, such as Russia. The unaffordability of energy could however be addressed in harmony with EU climate policy, and its geopolitical interests, if governments shifted from subsidies to investing in the reduction of households’ energy needs and dependence on external source.
The term ‘energy poverty’ often comes up in discussions of the price squeeze, suggesting that access to energy is the key objective. But energy use is not a goal in itself: it is a means to an end, serving to heat homes, power appliances and so on† The aim should therefore be to reduce the amount of energy needed to deliver those same ends, while enhancing households’ own generation of energy—thereby reducing their need to purchase it.
Efficiency and generation
Households will always need energy, but this need can be reduced or met in ways other than by assisting purchase. Governments can support the insulation of homes and encourage the use of energy-efficient heating systems and appliances—several smart devices are available to enable households to control their central heating efficiently. Low-income households are more likely to use the most polluting energy sources and inefficient devices. Replacing them both reduces their utility bills and greenhouse-gas emissions.
More homes can be equipped with solar panels, which can also reduce utility bills. Roofs are still an underused area for generation, enjoying greater public acceptance than solar or wind farms marring the landscape.
Many energy-upgrade schemes operate across the EU, offering grants to households to insulate their homes and install solar panels. But these often do not reach those in poor-quality, energy-inefficient housing—people on low incomes mainly. This group may not be aware of the supports available or may lack the money to make required upfront payments or co-payments. Renters may not qualify if the measures target homeowners.
Eurofound research has shown more generally that low-income groups often do not receive the support for which they are eligible, so proactive approaches are needed, where those most in need are approached and barriers addressed. In countries where social-housing providers play an important role, measures can be implemented through them. As for rent accommodation, landlords should be offered the right incentives to install solar panels, and provide efficient heating systems and appliances for their tenants.
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Transport is another important area where people are being hit by rising energy prices. It is also one of the main contributors to climate change, representing almost a quarter of Europe’s greenhouse-gas emissions. It has not seen the same gradual decline in emissions as other sectors in recent decades (see figure).
To tackle this issue, policy-makers can focus on two things: reducing the need for transport and reducing transport’s energy needs.
Services such as education, childcare and healthcare could be more accessible to those they serve. As Eurofound’s research on access to care services indicates, ensuring that people use nearby services is not just a question of availability: these also need to be of good quality and accessible in other respects (such as absence of waiting time) to reduce the incentive to travel in search of better options.
Technology can play an important role here: teleworking, e-government and e-healthcare all reduce the need to travel. The pandemic has demonstrated the massive potential of this.
Transport needs can also be met in ways that reduce reliance on fossil fuels. Providing good access to public transport is a key element and is more in harmony with EU energy policy than facilitating private transport.
Furthermore, those on lower incomes are more likely to use public transport and more sensitive to cost, so investment in affordable quality public transport is a priority for a just transition. In its forthcoming work on access to essential services for people on low incomes, Eurofound maps how far member states and local governments facilitate access to public transport by reducing user cost for low-income groups.
Cities need to continue to promote cycling and walking by investing in well-connected, future-oriented cycle and pedestrian infrastructure. Such active transport modes are by far the cleanest, healthiest and cheapest. As the vast majority of Europeans live in urban areas, a broad swath of the population can benefit. Workplaces are often located in urban centers, where rents and house prices have become unaffordable for many, meaning that living close to work is impossible. Connecting suburbs better with infrastructure that facilitates active forms of transport can benefit these workers.
Rural communities should not be overlooked; they need to be better served. While in the short term, it may be necessary to resort to fuel subsidies, smarter solutions can be sought. Better access to broadband could reduce the need to travel to work. Where the cleaner alternatives of cycle highways and public transport are unrealistic, access to electric cars and charging driven by solar cells could be provided.
The invasion of Ukraine has once again taught us that the future is insecure—conflict is a driver of change. One result may be that energy prices remain high or increase even further. In contrast to ad hoc financial support for energy consumption, reducing households’ dependence on external energy sources would improve their resilience in the face of such price rises.
Energy subsidies may be cut and VAT increased from one moment to the next, by current or future governments. Most measures to reduce dependence on external energy cannot however be easily dismantled: once solar cells have been installed, homes insulated and cycling or walking infrastructure built, people know they can rely on them over the long run.
The increase in energy prices risks creating a green transition where the poor face the biggest challenges. Reducing their needs for energy and, where needs remain, meeting them mostly with clean energy generated by the household would serve to ensure a truly just transition—reaching climate neutrality by 2050 without leaving anybody behind.
Hans Dubois is research manager in the social policies unit at Eurofound in Dublin.