In the face of fuel poverty, energy cheques must evolve rapidly

As of January¹, 2018, the so-called basic social tariffs for gas and electricity disappeared in favor of an "energy voucher " designed to cover part of the electricity expenses of households in fuel poverty.
Boris Solier, University of Montpellier and Jacques Percebois, University of Montpellier

Average assistance of 150 euros

Until now, these low-income households benefited from a flat-rate reduction on their electricity bill, which could represent up to 140 euros per household, depending on the wattage subscribed and the number of occupants. From now on, they will receive a cheque for a maximum annual amount of 227 euros, enabling them to meet part of their electricity bill.
In the four départements where the energy voucher scheme has been tested (Ardèche, Aveyron, Pas-de-Calais and Côtes-d'Armor), it has provided average assistance of 150 euros per household. The government plans to increase the average amount of the voucher sent to each precarious household to 200 euros in 2019.
This sum is calculated on the basis of the household's tax income (the so-called reference tax income, which takes account of household composition), and includes an eligibility ceiling. It should be noted - and this is an improvement on the social tariffs - that this voucher can be used to purchase energies other than gas or electricity, such as wood or fuel oil.
Remember that only 21% of low-income households are heated by electricity, compared with 29% of the French average. Many heat with gas, wood or fuel oil, particularly in suburban or rural areas.

An impact difficult to assess

In practice, low-income households will also be able to use the voucher for other expenses, and in particular to finance energy efficiency measures such as insulation work.
Should we therefore fear a "rebound effect", or even a "substitution effect"? The "rebound effect" refers to the increase in a household's consumption following an increase in income. This is a well-known problem in energy efficiency policies, where the gains made by improving the energy performance of housing are often limited in return by the rise in energy consumption.
By providing direct financial assistance to low-income households, the energy voucher can 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 the purchase of energy may also lead the household to give priority to other expenses. However, it can be argued that the household is the best judge of how to use its income, and that it is preferable to leave it free to make its own decisions.
This is the same approach taken by proponents of "negative taxation": it is better to give monetary income to a precarious person, who will do what he or she likes with it, than to provide free services directly. From now on, households will buy their electricity at the market price and will therefore know what it costs, which should encourage them to save more. Direct financial assistance will help them in this process.
The impact of this measure on the evolution of fuel poverty is difficult to assess. On the one hand, the energy voucher will potentially concern a larger number of households than the social tariffs, since the threshold for allocation has been set at 7,700 euros of income per year for a single person (11,500 euros for a couple with two children), compared with 2,175 euros previously for the social tariffs.
On the other hand, the measure is likely to penalize consumers who use both gas and electricity, since where they were able to combine the two social-rate schemes, they will now receive a single cheque.

The weight of the carbon tax

For households suffering from fuel poverty, we also add the carbon tax ramping upwhich is already more than 44 euros per tonne of CO₂ in 2018 and should reach more than 86 euros per tonne of CO₂ by the end of the quinquennium in 2022.
The aim of the carbon tax is to reduce CO₂ by encouraging the use of low-carbon energies rather than fossil fuels. The tax system is regressive: while low-income households consume relatively less energy than affluent households, they spend a higher proportion of their income on energy.
Firstly, it's an additional burden for low-income households, who are often heated by fuel oil and can't afford the most efficient and expensive household appliances. Secondly, it is a double penalty for low-income households living on the outskirts of towns, 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, and must be accompanied by compensatory measures to help low-income households. This will require changes to the energy voucher scheme and the introduction of targeted support measures, such as subsidies for the purchase of less polluting vehicles.
The main problem lies in the fact that many environmental measures tend to penalize the most modest: this is the case for congestion charging, eco-tagging for city traffic, alternating traffic measures and, of course, taxes on greenhouse gas emissions. If they are to be introduced successfully and combat fuel poverty effectively, energy transition policies will need to take account of these distributional effects.
Boris SolierSenior lecturer in economics, research associate at the Climate Economics Chair (Paris-Dauphine), University of Montpellier and Jacques PerceboisProfessor emeritus in economics, associate researcher at the Climate Economics Chair (Paris-Dauphine), University of Montpellier
Visit original version of this article was published on The Conversation.