Who’s energy poor in the EU? It’s more complex than it seems

Depending on the indicator selected, between 8% and 16% of the EU population is facing energy poverty, while most of the energy poor are not income poor, according to a comprehensive analysis of the main energy poverty indicators.

Amidst the EU’s push for a fair green transition, and further reinforced by the uncertainties of the energy market, the issue of energy poverty has come to the forefront and become a critical policy priority. Energy poverty can be measured in different ways, but its measurement is a challenge for policy formulation and action to address it.

A JRC study investigated four primary energy poverty indicators to understand the EU-wide distribution and socio-economic profiles of “energy poor.” The findings underline the usefulness of relying on a battery of various indicators to provide a picture of energy poverty.

The Social Climate Fund regulation and the revised Energy Efficiency Directive define energy poverty as a household’s lack of access to essential energy services, such as heating, hot water, cooling, lighting and energy to power appliances.

According to the Commission’s Recommendation on Energy Poverty, it is a multidimensional phenomenon driven by three underlying causes, namely, high-energy expenditures in proportion to household budget, general low levels of income and low energy performance of buildings.

What’s the challenge when measuring energy poverty?

There are numerous papers discussing the advantages and disadvantages of different energy poverty indicators used in Europe, but little is known about their overlap and their interrelationships.

The JRC study addresses this gap, for the first time, by assessing the coverage, overlap, and socio-economic profiles of four primary energy poverty indicators employed in the EU for cross-country comparisons, using harmonized microdata for all 27 EU countries.

This study was developed within the Assessing and Monitoring Employment and Distributional Impacts (AMEDI) projects carried out with the Commission’s Directorate General for Employment, Social Affairs and Inclusion.

The study employs two types of indicators: “expenditure-based” indicators and “consensual approach” indicators. The expenditure-based indicators are calculated using monetary values: the 2M indicator is calculated as the proportion of households whose share of energy expenditure in income is more than twice the national median (2M indicator), i.e. energy costs represent a high share of expenditures.

While the M/2 indicator (low absolute energy expenditure) is calculated as the proportion of households whose energy expenditure is below the national median energy consumption.

The “consensual approach” indicators are instead based on self-reported assessments of housing conditions: the share of people keeping their house adequately warm (AW indicator), and those who have arrears on utility bills (UB).

The calculations are based on EU statistics and income living conditions (SILC) data from 2015 matched to Household Budget Survey (HBS) data from the same year and uses EUROMOD for refining estimates of household disposable income and improve comparability across countries. For example, they show that 8.5% of Europeans were unable to keep their house warm in 2015 (indicator AW).

The analysis finds that there is very little overlap between the four energy poverty indicators examined. This explains why at least 40% of the EU population (around 180 million citizens) would be classified as “energy poor” if one would follow a “union approach,” in which someone is energy poor by at least one indicator.

On the other side, an “intersection approach”—where poor is who satisfies the poverty condition simultaneously for the four indicators—would lead to a very low energy poverty rate of 0.3% of the EU population, i.e. about 330 thousand.

The results

The aggregate analysis carried out shows that between about 8% (using consensual indicators) and about 16% (using expenditure-based indicators) of the EU population can be classified as energy poor.

Education and employment have a significant impact on energy poverty, as a higher rate of adults with jobs or higher education levels can slightly decrease the risk of experiencing energy poverty. Remarkably, about 30% of energy-poor households are also income-poor, falling below the poverty threshold.

The study also reveals that middle-income households face a relatively high incidence of energy poverty, so it does not only affect income-poor individuals.

Energy poverty among EU Member States

Energy poverty also displays significant disparities across EU countries, as it is influenced by very heterogeneous national realities, including geography, natural resources, climate, infrastructure, national public policies, etc. Furthermore, cultural aspects can explain differences in self-reporting energy deprivation conditions.

For instance, in Greece and Bulgaria, nearly 30% of the population is energy poor by at least two indicators, while in Western and Northern EU countries, this figure drops below 5%. Moreover, the differences in energy poverty rates across EU countries is much larger when using subjective indicators.

For example, AW-poverty rates, which measure the inability to adequately heat one’s home, range between almost zero in Sweden and Luxembourg to about 40% in Bulgaria.

A similar trend is observed when analyzing arrears on utility bills (UB), while income shares of residential energy expenditure that are above twice the national median (2M) appear to be more similar across countries, indicating that energy poverty rates range between approximately 10% (Netherlands, Hungary) to slightly above 20% (Sweden, Malta, and Latvia).

This underscores the importance of tailored policy responses that consider national contexts and differences across countries regarding income levels, energy prices or investments in energy capital (i.e. efficient appliances, insulation, etc.). Moreover, this result points to the need to consider carefully what is the most suited indicator for cross-country comparisons.

How to tackle energy poverty across the EU?

Energy poverty has far-reaching consequences, from exacerbating health issues to limiting social and economic participation. Monitoring energy poverty is crucial for understanding the diversity of the socio-economic profiles of the energy poor and for improving the design of inclusive policies. Relying on a single indicator may overlook significant portions of the population experiencing energy-related deprivations.

To address energy poverty requires a policy mix

Income-support policies are essential to tackle energy poverty situations, especially for households under the poverty line. However, considering that middle-income households also experience a relatively high incidence of energy poverty, other types of policies may be warranted to support them.

This is the case of price caps, which reduce the burden of expenditures on energy goods, or structural interventions that step-up energy efficiency by reducing the need for energy consumption. Further, monetary policies such as subsidies to improve energy efficiencies could also reduce the burden of energy expenditures on households.

Finally, behavioral levers, such as assisting consumers in setting goals for reducing energy consumption through apps and educational campaigns to empower individuals to make investment choices that improve energy efficiency, may also be effective in reducing the energy poverty phenomenon.