CEB publishes a study on energy poverty in Europe
4 April 2019
Paris – The Council of Europe Development Bank (CEB) published its latest study which examines the state of energy poverty in Europe, its causes, and how energy efficiency can work to eliminate it. A quantitative empirical analysis explores the complex economic and policy relationships that can help reduce a problem that should not exist in modern day Europe.
Energy poverty is an enduring issue that disproportionately affects the most vulnerable households in Europe. The term ‘energy poverty’ has no universal definition, but typically means that households spend an unreasonably high proportion of their income on energy or that households are unable to afford to meet basic energy needs. The causes of energy poverty can be multidimensional, stemming from:
- Low incomes
- Poor quality homes
- Energy inefficient appliances.
An estimated 30 million people live in energy poverty in Europe. Energy poverty rates are highest in Southern and Central-Eastern European countries, but the problem is European-wide. High rates of energy poverty correlate with:
- Higher at-risk-of-poverty rates
- Higher food poverty (i.e. inability to afford basic food staples)
- Higher rates of self-reported health issues.
Energy prices and income levels influence household energy consumption to different degrees of magnitude and in different directions. In the short run, changes in prices of energy (be it electricity or gas) or in household income levels have a small impact on household energy consumption. However, in the long run, household demand for energy tends to have wider fluctuations. Long-term demand for energy depends on:
- Prices: For electricity, a 1% increase in price does often result in a less than 1% drop in consumption (i.e. it is price inelastic). This may mean that households spend more money on a similar level of electricity. For gas, a 1% increase in price results in a more than 1% drop in consumption (i.e. price elastic); meaning households may forgo using gas as an energy source if prices become too high.
- Incomes: A rise in income in the long term is associated with an increase in the consumption of either electricity or gas and should thus help reduce energy poverty rates.
Governments across Europe have been working to implement more policies to promote energy efficiency in homes. In the last 20 years, energy efficiency has gained increased importance, and the number of related policies has ballooned. While many governments still employ housing and energy subsidies to help, in part, to combat energy poverty issues in the short run, the long-term trend has been towards promoting energy efficiency to improve the quality of homes and to reduce the energy cost burden for low-income households – as well as the budgetary needs that arise from subsidies.
The push for renewable energy will be a crucial driver to combat energy poverty when accompanied by household energy efficiency improvements. Renewable energy has become more common as a household energy source. As renewable energy technology develops and capacity increases, the marginal cost of renewables will continue to fall, making them affordable alternatives to conventional energy sources.
The study’s empirical analysis shows that energy efficiency improvements and related regulatory policies contribute to decreases in household energy consumption and energy poverty rates. The econometric results of the paper show that:
- Household energy spending can decrease by 2.4% to 7.1% after a 10% increase in the household energy efficiency score.
- Household energy consumption may drop by 4.4% several years after governments undertake and implement a typical high impact energy efficiency policy that sets minimum regulatory standards on household energy efficiency.
- Energy poverty rates also tend to drop by 2.1% when energy efficiency index scores increase by 10%, thus showing the direct effect of energy efficiency in helping reduce energy-related economic vulnerability.
Set up in 1956, the CEB (Council of Europe Development Bank) has 41 member states. Twenty-two Central, Eastern and South Eastern European countries, forming the Bank's target countries, are listed among the member states. As a major instrument of the policy of solidarity in Europe, the Bank finances social projects by making available resources raised in conditions reflecting the quality of its rating (AAA with Standard & Poor's, outlook stable, AA+ with Fitch Ratings, outlook stable and Aa1 with Moody's, outlook stable). It thus grants loans to its member states, and to financial institutions and local authorities in its member states for the financing of projects in the social sector, in accordance with its Articles of Agreement.
Energy Poverty in Europe: How Energy Efficiency and Renewables Can HelpThis study shows that energy efficiency improvements and related regulatory policies contribute to decreases in household energy consumption and energy poverty rates. Published: March 2019 Download