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Will green measures increase fuel poverty?

  • 27 Oct 2011, 09:00
  • Robin Webster

Last Thursday the Mail announced in a somewhat arresting headline that

"Thousands [are] dying because they can't afford heating bills... and green taxes are adding to the burden"

along with a sub-heading:

"Grim toll as green taxes push fuel costs even higher".

The article followed the publication of a major report on fuel poverty. Commissioned by the Government, the interim version of the Hills Fuel Poverty Review concluded that even if only ten percent of 'excess winter deaths' are due to fuel poverty, 2,700 people are dying every year because they can't afford to heat their homes.

To what extent, however, did the report ascribe those deaths to 'green taxes'? The truth, as with previous articles published on this topic, turns out to be both a lot more nuanced, and a lot more interesting, than the Mail editorial line suggests.

The Mail article stated that

"The spiralling cost of gas and electricity combined with the impact of green taxes is putting health and lives at risk, researchers found. The study concluded that green taxes on household power bills are 'regressive' and have a disproportionate impact on poorer households.

"…Green taxes designed to meet a £200billion bill to switch to wind, wave, solar and nuclear power currently add around £100 to annual bills. However, this figure is set to rise sharply in the next few years and will hit the poor, particularly pensioners on fixed incomes, harder than most."

This £100 figure cited by the Mail refers to Ofgem's estimate that "environmental and social supplier obligations" currently add about £100 to the average dual fuel bill. It should be noted, however, that the entirety of the £100 is not devoted to renewable energy subsidies. Ofgem no longer releases detailed breakdowns of their analysis, but they informed us earlier this year their figures indicated that approximately £48 of the cost is being spent on the Carbon Emissions Reduction Target (CERT) and about £3 on Community Energy Savings Programme (CESP). Both CERT and CESP focused on encouraging energy efficiency measures like home insulation - and thus on reducing bills and tackling fuel poverty.

The Hills report recognizes this, concluding:

"We show how government policies both increase and decrease potential energy bills."

Interestingly, analysis in the report finds that 'products policies' mandated by the EU, which enforce energy efficiency standards on producers of appliances "should reduce energy costs for all households", meaning a "positive distributional impact" and "the greatest proportionate benefit arising for low income households."

However the report also concludes that

"… those energy and climate policies that lead to higher prices will largely have a regressive impact. The net effect of these policies will depend on how their benefits are distributed (that is, who will receive the energy efficiency improvements they finance)."

and

"…the net impact is an average loss of around 0.8 per cent of income for the poorest fifth of households, but approximately break-even for the richest fifth of households.

In other words, measures in the climate and energy package which act to raise energy bills will fall disproportionately on disadvantaged households, where a greater proportion of the budget is spend on energy. But if measures designed to encourage uptake of energy efficiency measures are targeted at the right households, then the effect could be offset. This is illustrated in the following graph:

Screen Shot 2011-10-26 At 16.42.46

The report explicitly recognizes that

"The actual distribution of benefits resulting from the policies will depend on decisions yet to be made, in particular, how the resources from the new Green Deal and Energy Company obligation are split between those more directly benefiting the potentially fuel poor and those aimed more generally at carbon reduction…it is important that policies are designed in such a way as to ensure that improvements to the energy efficiency and heating needs of dwellings of those on the lowest incomes can be supported…"

To be fair, the Mail article did prominently include a quote from the report's author where he stated that whether the "regressive outcome" of an increase in fuel poverty happens

"...depends on both more recent developments, such as the Warm Home Discount, and decisions yet to be taken."

However, there is no sense from the article that government measures designed to increase energy efficiency could actually lower consumer bills - presumably because this does not support the Mail's editorial line on the matter. This is a little bit ironic, given that a few days later the Mail on Sunday 'personal finance' section went on to print a two-page spread on how consumers can benefit by investing in renewable energy technologies and energy efficiency measures. Their article said that

"…before jumping in, households should also look at what they can do to cut energy consumption. Improving insulation, fitting smarter heating controls and changing habits can have a big impact on how much energy you use at home."

The Mail's article on the Hills report contains a grain - or even one or two grains - of truth. But as so often, the reality is a lot less black and white than they make out.

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