In light of energy poverty, the energy check must evolve quickly
On January1, 2018, social tariffs for gas and electricity deemed essential disappeared, replaced by an "energy check" intended to cover part of the electricity costs of households in fuel poverty.
Boris Solier, University of Montpellier and Jacques Percebois, University of Montpellier
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This development is part of the drive to open up energy markets in Europe to competition. Retail prices must now better reflect market conditions in order to encourage end consumers to switch suppliers. That is why the “clean energy package”, proposed by the European Commission at the end of 2016, recommends the eventual abolition of regulated sales tariffs and the replacement of social tariffs within five years with mechanisms such as "energy checks."
A household is considered to be in a situation of energy poverty when they spend 10% or more of their income on energy costs for their home; this does not include transportation costs, particularly gasoline or public transportation costs.
Nearly 4 million households, representing more than 10 million people, are in this situation in France, according to figures from theEnergy Poverty Observatory.
An average subsidy of €150
Until now, these vulnerable households benefited from a flat-rate reduction on their electricity bill, which could amount to up to €140 per household depending on the power subscribed and the number of occupants. They will now receive a check for a maximum annual amount of €227, enabling them to cover part of this purchase.
In the four departments where the energy check was trialed (Ardèche, Aveyron, Pas-de-Calais, and Côtes-d'Armor), it provided an average of €150 per household. The government expects the average amount of the check sent to each low-income household to reach €200 in 2019.
This amount is calculated based on the household's taxable income (known as the reference taxable income, which takes into account the composition of the household) and is subject to an eligibility cap. It should be noted—and this is an improvement over social tariffs—that this voucher can be used to purchase energy sources other than gas or electricity, such as wood or fuel oil, for example.
It should be noted that only 21% of low-income households use electricity for heating, compared to 29% of French households on average. Many use gas, wood, or fuel oil for heating, particularly in suburban or rural areas.
An impact that is difficult to assess
In practice, low-income households may also use this check for other expenses, including financing energy efficiency measures such as insulation work.
Should we therefore fear a "rebound effect" or even a "substitution effect"? The rebound effect refers to an increase in household consumption following an increase in income. This is a well-known problem in energy efficiency policies, where gains made through improving the energy performance of homes are often offset by an increase in energy consumption.
By providing direct financial assistance to low-income households, the energy check may encourage them to increase their consumption, which is not necessarily the case with social tariffs. The fact that this additional income is not specifically earmarked for energy purchases may also lead households to prioritize other expenses. However, it can be argued that households are the best judges of how to use their income and that it is preferable to leave them free to make their own decisions.
This approach is similar to that developed by proponents of the "negative income tax": it is better to give a person in a precarious situation a cash income to do with as they wish than to provide them with free services directly. Households will now buy their electricity at market prices and will therefore know how much it costs, which should encourage them to save more. Direct financial assistance will help them in this endeavor.
The impact of the measure on the evolution of energy poverty is difficult to assess. On the one hand, the energy check will potentially affect a larger number of households than social tariffs, since the eligibility threshold has been set at €7,700 per year for a single person (€11,500 for a couple with two children), compared to €2,175 previously for social tariffs.
On the other hand, the measure risks penalizing consumers who use both gas and electricity, since where they could previously combine the two social tariff schemes, they will now receive a single check.
The weight of the carbon tax
For households suffering from energy poverty, there is also the added factor of increase in carbon tax, which is already more than €44 per ton of CO2 in 2018 and is expected to reach more than €86 per ton of CO2 by the end of the five-year term in 2022.
The objective of the carbon tax is to reduce CO2 by favoring the use of carbon-free energies over fossil fuels. This is a regressive tax: while low-income households consume relatively less energy than wealthy households, they spend a larger proportion of their income on energy costs.
Firstly, it is an additional burden for low-income households, which often use oil for heating and cannot afford the most efficient and expensive household appliances. Secondly, it is a double penalty for low-income households living on the outskirts of cities, as it forces them to travel in vehicles that are not very efficient due to the lack of local public transport.
Green taxation therefore remains unequal; it must be accompanied by compensatory measures for the most modest households. This will require changes to the energy check system and the introduction of targeted support measures, such as subsidies for the purchase of less polluting vehicles, for example.
The main problem is that many environmental measures tend to penalize those with the lowest incomes: this is the case with congestion charges, environmental stickers or badges for driving in cities, alternate traffic measures and, of course, taxes on greenhouse gas emissions. To be successfully introduced and effectively combat energy poverty, energy transition policies must therefore take these distributional effects into account.
Boris Solier, Senior Lecturer in Economics, Associate Researcher at the Chair in Climate Economics (Paris-Dauphine), University of Montpellier and Jacques Percebois, Professor Emeritus of Economics, Associate Researcher at the Chair in Climate Economics (Paris-Dauphine), University of Montpellier
The original version of this article was published on The Conversation.