In the face of energy poverty, the energy voucher must evolve quickly
As of January1, 2018, the so-called “essential needs” social rates for gas and electricity were phased out and replaced by an “energy voucher” intended to cover a portion of the electricity costs for households facing energy poverty.
Boris Solier, University of Montpellier and Jacques Percebois, University of Montpellier
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This development is part of the trend toward opening up Europe’s energy markets 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 in late 2016, recommends the eventual elimination of regulated retail rates and the replacement of social rates with “energy voucher”-type mechanisms within five years.
A household is considered to be in a situation of energy poverty when 10% or more of their income is spent on energy costs for their home; this does not include transportation-related expenses, particularly gasoline costs or public transportation fares.
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 euros
Until now, these low-income households received a flat-rate discount on their electricity bill, which could amount to as much as 140 euros per household depending on their contracted power capacity and the number of occupants. They will now receive a check, with an annual amount of up to 227 euros, to help them cover part of this cost.
In the four departments where the energy check was piloted (Ardèche, Aveyron, Pas-de-Calais, and Côtes-d’Armor), it provided an average subsidy of 150 euros per household. The government expects the average amount of the check sent to each low-income household to reach 200 euros in 2019.
This amount is calculated based on the household’s taxable income (known as the “reference taxable income,” which takes household composition into account) and is subject to an eligibility cap. It is worth noting—and this represents an improvement over social rates—that this voucher can be used to purchase energy sources other than gas or electricity, such as wood or heating oil, for example.
It’s worth noting that only 21% of low-income households use electricity for heating, compared to 29% of the French population on average. Many heat their homes with gas, wood, and heating oil, particularly in suburban or rural areas.
An impact that is difficult to assess
In practice, low-income households will also be able to use this check for other expenses, including energy-efficiency measures such as insulation work.
Should we therefore be concerned about a “rebound effect” or even a “substitution effect”? The term “rebound effect” refers to an increase in a household’s consumption following an increase in its income. This is a well-known issue in energy efficiency policies, where gains achieved through improvements in a home’s energy performance are often offset by a rise in energy consumption.
By providing direct financial assistance to low-income households, the energy voucher may encourage them to increase their consumption, which is not necessarily the case with subsidized rates. The fact that this additional income is not specifically earmarked for energy purchases may also lead households to prioritize other expenses. However, one might argue that households are best suited to decide how to use their income and that it is preferable to allow them the freedom to make their own decisions.
This approach mirrors that advocated by proponents of the “negative income tax ”: it is better to provide a person in precarious circumstances with a cash allowance—which they can use as they see fit—than to provide them directly with free services. Households will now purchase their electricity at market prices and will therefore know what it costs, which should encourage them to save more. Direct financial assistance will help them in this effort.
The measure’s impact on trends in energy poverty is difficult to assess. On the one hand, the energy voucher will potentially benefit a larger number of households than the social rates, since the eligibility threshold has been set at 7,700 euros in annual income for a single person (11,500 euros for a couple with two children), compared to 2,175 euros previously for the social rates.
On the other hand, the measure risks penalizing consumers who use both gas and electricity, since whereas they could previously combine the two social rate programs, they will now receive a single voucher.
The Burden of the Carbon Tax
For households facing energy poverty, there is also the increase in the carbon tax, which is already more than 44 euros per metric ton of CO2 in 2018 and is expected to reach more than 86 euros per metric ton of CO2 by the end of the five-year term in 2022.
The goal of the carbon tax is to reduce CO emissions2 by prioritizing the use of low-carbon energy sources over fossil fuels. This is a regressive tax system: while low-income households consume relatively less energy than affluent households, they spend a larger share of their income on energy costs.
First, it places an additional burden on low-income households, which often rely on heating oil and cannot afford the most energy-efficient and expensive appliances. Second, it imposes a double burden on low-income households living on the outskirts of cities, as it forces them to travel in vehicles that are, in any case, not very fuel-efficient due to the lack of local public transportation.
Green taxation therefore remains inequitable; it must be accompanied by compensatory measures to support the lowest-income households. This will require revising the energy voucher program and implementing 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 urban tolls, environmental stickers or permits for driving in cities, alternate-day driving restrictions, and, of course, taxes on greenhouse gas emissions. To be successfully implemented and effectively combat energy poverty, energy transition policies must therefore take these distributional effects into account.
Boris Solier, Associate Professor of Economics, Research Associate at the Chair in Climate Economics (Paris-Dauphine), University of Montpellier and Jacques Percebois, Professor Emeritus of Economics, Research Associate at the Chair in Climate Economics (Paris-Dauphine), University of Montpellier
The original version This article was published on The Conversation.