Heat and Light: Household Energy Consumption in Perspective
BOX 3.2 Defining Energy Poverty At its origin, the concept of energy poverty implied the inability of households to meet the physiological energy needs—for example, for heating, cooking, or lighting—with available resources. In practice, though, most definitions of energy poverty specify a resource threshold in terms of a maximum acceptable proportion of household income devoted to energy consumption. An extensive regional study on power sector affordability in Southeastern Europe, commissioned by the EBRD in 2003, provided two examples of criteria for energy poverty, as follows: In Hungary, energy poverty is based on three criteria: (a) the household’s monthly energy expenses reach or exceed 35 percent of the total monthly household income, (b) the household’s monthly heating expenses reach or exceed 20 percent of the total monthly household income, and (c) per capita income in the household does not exceed twice the lowest old-age pension amount. Thus, energy-poor households are defined in reference to a minimum income, whether they are struggling to pay bills, and whether heating bills represent a significant proportion of total expenses. An alternative approach involves a basic energy consumption threshold as well. In Scotland, energy poverty is defined as the level at which a household would need to spend 10 percent or more of its income on all fuel and heat the home to an adequate standard of warmth. According to World Health Organization recommendations, 21°C in the living room and 18°C in other rooms should be ensured. Here, the definition focuses on what a household would need to pay to maintain adequate warmth, rather than what it actually pays. Another method of defining energy poverty, commonly used in developing countries, is to assume that the energy poverty line is equal to the average energy consumption of those households in which overall per capita consumption reaches +/− 10 percent of the purchasing power parity US$1-a-day income poverty line. (The water poverty threshold in the United Kingdom is also defined based on the water expenditure of the poorest households.) However, for energy, this must be adjusted upward for cold countries to take account of the costs of maintaining an adequate level of heating in dwellings. EBRD (2003) underlines that assessing electricity affordability is less straightforward than assessing energy poverty. The European Commission’s Energy 2020 strategy aims to protect vulnerable consumers, devolving the definition of energy poverty to EU MSs. The commission’s working paper notes that the lack of a consensus definition for energy poverty should not be a problem per se because it allows for solutions that are adapted to national and local conditions. Thus, some countries define energy poverty as household energy expenditures that exceed a certain share or household expenditure on energy products that is a higher proportion than the national average. An alternative proposal looks at households that have difficulties making payments or are in arrears, though this is not shown to have a strong correlation with price. Source: European Commission 2010b.
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