Can the ‘Just Transition’ put an end to energy poverty?

Margareta Kuhmunen, 68, and her husband reindeer herder Lars Kuhmunen, 75, live in a former fox breeding farm. The old butchery is now their kitchen. The whole house is heated by a wood stove.

A blog post by Marilyn Smith, Founder & Executive Director, The ENERGY ACTION Project (EnAct)

1 April 2020, marked the fifth anniversary of a day when energy prices changed daily life for 43 million people across Ukraine. COLD at HOME, a short documentary film produced by The ENERGY ACTION Project (EnAct), follows the story of Katerina Nykonyvna – a 75-year-old pensioner – as she struggles through her first winter after a gas price increase of 280%. Past and present bills spread on the table, Katya shows that gas and electricity now eat up €68 of her monthly pension of €75 and quietly says,“There is nothing left to live on.”

Katya saw this coming and prepared as much as possible. Throughout the summer and fall of 2014, she spent long days growing and canning fruits and vegetables to secure her winter food supply. The return of her son, Stephan, to renovate the house built to be a summer dacha became a Catch-22. It meant Katya couldn’t just close off rooms that were too cold to live in: space heaters and watching DIY videos via the Internet drove up the electricity bill.

Sunday morning revealed a much more subtle aspect of Katya’s new reality. During the week, we had seen her deep faith displayed as she crossed herself each time we passed the Orthodox church in Bobritsya. But as neighbours congregated, she sat alone in her kitchen – embarrassed that she could not afford to buy a candle to say a prayer.

What causes energy poverty in the EU?

In the case of Ukraine, this sudden onset of energy poverty at the household level is linked to long-term energy policy, geopolitics and international finance. For decades, Ukraine has earned substantial revenues as the transit country for oil and gas moving from Russia to Europe. As Arabian Gulf countries have done, the government ‘shared the wealth’ by supplying gas to citizens at extremely low prices. In 2014-15, with the war in Donetsk breaking out and the economy crippled, the government turned to the International Monetary Fund (IMF) for a loan. Eliminating gas subsidies was a pre-condition, with no option to slowly reform pricing to give people time to adapt.

Elsewhere, a variety of factors lie behind some people being unable to afford sufficient energy to support health and well-being, with Dr. Brenda Boardman identifying three underlying factors: the relationship among energy prices, income level and quality of dwellings. The third, determined Dr. Boardman, was the most critical as poor quality homes require more energy than they should and are often inhabited by people with low incomes. This means that relative to income, energy use and energy prices have a greater impact on their household budget. Initially, the UK reacted effectively, placing energy efficiency obligations (EEOs) on energy companies and using revenues from this mechanism to improve the efficiency of the worst homes.   

Fast-forward 30 years and different causes have come to the fore across EU countries.

  • Romania and Hungary highlight extreme situations in Central and Eastern Europe. In the former, some 400 000 rural households have never been connected to electricity grids; people spend up to 50% of meager incomes on batteries and diesel for generators. In Budapest, district heating leaves people with no control of indoor temperature and bills are charged by size of living space, not actual consumption. In suburbs, with gas prices rising, people have returned to burning wood in old, inefficient stoves.  
Photo: Bogdan Dinca
  • In Spain, policies to transition to renewables – thereby improving energy security – were coupled with efforts to prompt citizens to switch from gas to electricity for home heating and cooling. Over the period 2008-12, electricity prices rose 63% as domestic consumption increased, such that the share of household budget spent on electricity rose by 33%. With the economic crisis in full force, most households were facing dramatically reduced incomes: by 2012, 25% of people could not afford to stay comfortably cool in summer [1].    

Spain: Evolution of average household income

Figure 1 – Evolution of average household income and domestic energy expenditure (total and disaggregated by energy carriers) in Spain 2006-12

Sweden is among the Nordic countries arguing against inclusion of energy poverty in EU directives, saying it is not a widespread problem. Yet those who live closest to hydro stations spend substantial amounts on back-up equipment to cope with blackouts they know will come, and last from several hours to a few days. Some have suffered devastating economic hits.  

Jokkmokk, Sweden • Margareta and Lars Kuhmunen (68 and 75 when photo was taken) are reindeer herders, and away from home much of the summer. In 2017, they returned to find there had been an outage lasting several weeks: all the meat they had stored in freezers had spoiled. Photo: Simon Eliasson

What do cold homes cost a country?

A sharp focus on data and reporting about the causes of energy poverty and its impacts on low-income households often leaves the bigger picture – and the importance of broad policy action – unexplored.  Energy poverty has important impacts on health and thus on healthcare costs.

Cold at Home results

In 2013, the Buildings Research Enterprise (UK) examined what hazards in a home led to costs for the National Health Service (NHS) [2]. Of a total £1.4 billion annual costs, £848 million were associated with people being chronically cold at home– which contributes to high-cost interventions for respiratory and coronary complications (e.g. £20,000 per heart attack or death) [3].  Aside from the high costs, what stands out is that all other hazards are truly accident: it is entirely possible to avoid the NHS costs linked to excess cold.

Eradicating both energy poverty and associated health costs has been the aim of the Ireland’s Warmth and Well-being Scheme [4],  a three-year pilot project jointly operated by the Department of Communication, Energy and Natural Resources (DCENR), the Department of Health, the Health Service Executive (HSE) and Sustainable Energy Ireland(SEAI) to create this new scheme [5]. With a budget of €20 million, the project performed deep energy renovations on ~850 poor-quality homes (primarily in Dublin). Data from previous schemes show that improving the building energy rating (BER) from E1 to B2 (typically costing around €20,000) can deliver annual energy bill savings of €2,500; freeing up ~€200/mo is an immediate,substantial difference for low-income households. Additionally, the new scheme allows health practitioners (through the HSE) to refer patients with chronic health problems due to cold and damp to the SEAI for housing upgrades. In effect, the treating physician can now tackle the root problem once, rather than minimising symptoms for years on end. The scheme prioritises homes with residents over 55 years of age or children with respiratory problems.

Starting and Sustaining the EU “Renovation Wave”

With its pledge to ‘leave no one behind’, while massively transforming the EU economy, the European Green Deal (EGD) sets itself a massive challenge, particularly in relation to production and consumption of energy. Large-scale transition to clean energy systems will carry heavy costs; at present, the way such costs are passed on to consumers plays a significant role in the reality that ~50 to 100 million EU citizens live in energy poverty [6]. The EGD acknowledges the need to massively renovate the EU building stock to reduce energy demand and emissions while also upholding a ‘just transition’ by lifting people out of energy poverty. The Commission will reveal its plan for a “Renovation Wave” in the fall of 2020. 

Boosting the renovation rate to 3% annually (from 1% at present) – and sustaining that level until 2050 – would, according to Renovate Europe, slash energy demand in buildings by 80% (reducing overall EU demand by 30%) while drastically cutting related emissions. But bringing ALL buildings up to current efficiency standards would require investment of €1billion per day, every day until 2050. A series of briefings (cross-posted to COLD@HOME) outline key considerations for the Renovation Wave, such as:

At present, Renovate Europe notes an annual funding gap of €130 to €200 billion. An overarching challenge warrants mention: 80% of investment is needed on the demand side, of which 71% must be directed to the residential sector, which is particularly difficult to renovate because it means millions of small projects on homes with unique features.   

The European Green Deal is an unprecedented opportunity to enhance energy security across the EU and deliver to all citizens the many benefits of clean energy. While each country faces different challenges, the situation in Spain highlights the need to carefully manage the costs of an EU-wide clean energy transition. Application of just transition principles will help ensure everyone can afford enough energy for health and well-being.

A new model for energy reporting

As actors around the world take up the challenge of achieving universal access to sustainable, affordable energy (Sustainable Development Goal 7), EnAct’s tagline, “Reporting that seeks to empower”  reflects our belief that it’s time for everyone to ‘get’ energy. Our dual mission is to raise awareness of high levels of energy poverty and directly address low levels of energy literacy.  

Recognising thetremendous value of academic research, policy initiatives, civil society andsocial impact projects, and associated financial schemes, EnAct aims to distillkey elements of lengthy reports into content that fosters cross-sectorcollaboration while also helping public audiences better understand energypoverty and energy more broadly. EnAct believes that to ‘empower’ people, wemust first find ways to ‘engage’ them – hence the strong visual andstorytelling components of our work.

Whether it be regarding people who cannot afford sufficient energy in developed countries, women who still cook with basic biomass (wood, charcoal and dung), the need for off-grid electrification or solving energy challenges in humanitarian crises or natural disasters, EnAct aims to remind people that everything they do, every minute of every day, requires some form of energy. One way we do this is through our Instagram account, @everyday_energy, which follows specific themes, explores the energy stories of different countries, and offers tips for more sustainable living.