High demand for energy from the post-Covid global economic recovery and the unjustified invasion of Russia in Ukraine have caused high energy prices, jeopardizing people's ability to cover their energy bills. Economists refer to this concept as energy poverty.
While there are indications that some middle-income consumers are struggling with their bills at the present time, it is low and lower/middle-income households that are most impacted, because they spend a significantly higher share of their income on energy and have less margin to reduce other costs. Research shows that energy poverty is frequently exacerbated by factors that go beyond low income levels – with low household energy efficiency and energy performance of buildings a major contributing factor, as well as high energy prices. So what is the EU doing to address the situation, in particular in the context of the current energy crisis?
Energy poverty is not a new phenomenon in the EU. Within the European Pillars of Social Rights, energy is considered one of the essential services, which everyone has the right to access at good quality. Indeed, EU policy has already addressed energy poverty on several fronts. It was one of the key concepts in the Clean energy for all Europeans package, adopted in 2019. In broad terms, the updated rules introduced requirements on Member States to define and monitor energy poverty in their country, so that we have a coherent, timely and transparent picture of the problem across the EU. Other changes look for the reduction and mitigation of energy poverty in energy efficiency, decarbonisation and clean energy policies to support a just energy transition for all. In 2012, 10.8% of Europeans were reported to be unable to afford keeping their home adequately warm, with large geographical variations across the EU. This figure reduced in the years that followed, and in 2021 the EU recorded 6.9% of people not able to pay to keep their home adequately warm. The surge in wholesale prices since autumn 2021 is expected to show much greater numbers now facing problems with their bills.
In a context of high inflation and increasing living costs for households, higher energy costs are being felt significantly, with households having to make ends meet by cutting on other essential expenditure. Between 2019 and 2022, on average across EU Member States, the share of energy expenditure in overall household spending increased by more than one third, almost doubling in some countries2. Between 2019 and 2022, low income groups spent on average 10-13% more on energy compared to the highest income groups, who spent 5-7% more.
Strengthening of the EU legal framework
One aim of the EU energy policy legal framework is to protect energy poor households and vulnerable customers. The laws set out obligations for Member States to address energy poverty predominantly through structural and energy efficiency measures. Disconnecting vulnerable customers from the grid is explicitly prohibited3 and, where necessary, Member States can even regulate energy prices for a limited amount of time (also known as 'social tariffs'). In the toolbox on energy prices adopted in October 2021, the Commission provided guidance on the application of the relevant legal provisions, and stepped up cooperation with and among Member States to exchange good practices and concrete cases of alleviating energy poverty.
Over the past months, the Commission has been working on expanding the toolbox further, including direct price interventions in retail markets, below-cost tariffs for households and direct support for business. In this context, emergency legislation has been agreed enabling EU countries to collect excessive revenues from fossil fuel companies and inframarginal electricity producers and to redistribute these funds to end-consumers. The Commission also facilitated and endorsed the joint declaration between suppliers, distributors, regulators and consumer organisations on additional voluntary consumer protection measures, which go beyond the existing regulatory framework until at least end of March 2023, including on prevention of disconnection, deferral of payments, careful use of unilateral contracts and provision of clear information4.
But EU efforts to address energy poverty are not just linked to the current crisis. There's still a lot to do not only to protect vulnerable or energy poor consumers, but also – and more importantly – to tackle the root causes of energy poverty. In this sense, it's worth noting that there are specific provisions proposed on energy poverty in the ongoing reforms of EU legislation for energy efficiency, building renovation and social protection5, which all contribute to the goal of reaching a 55% greenhouse gas emission reduction by 2030. The proposed provisions aim to facilitate access to renewable energy and to energy efficiency services, and to boost energy efficient housing. The EU also plans to provide financing for these objectives: The proposed Social Climate Fund would allocate a significant amount of the available EUR 72.2 billion to energy efficiency and building renovation investment. Moreover, the Recovery and Resilience Plans approved so far allocate 15% of the total expenditure1 to energy efficiency, with €64.5 billion to be invested in energy efficiency in the building stock.
The Importance of local level and local solutions The factors that influence energy poverty and its impacts are particularly visible at household level. For this reason, local governments and local actors are important agents of change and best placed to act on the ground. To support these local actors, the Commission has launched an Energy Poverty Advisory Hub6 as an initiative on local action. The advisory hub acts as a central platform of expertise for local authorities and all stakeholders interested in taking action to combat energy poverty in Europe.
It provides direct support, training, and research results and builds a collaborative network of stakeholders interested in taking action to combat energy poverty in Europe. The hub also provides technical assistance to municipalities to tackle energy poverty, for example by identifying energy poverty in the community or designing information campaigns. The goal is to empower vulnerable and energy poor consumers to become active players in the electricity market and the green transition.
Citizens are the EU's greatest asset in energy transition and their involvement is crucial for the EU Green Deal to be successful.1
1. This does not include transport fuel costs
2. Source: Energy prices and costs report, planned for publication by the European Commission in December 2022
3. Article 28 of Electricity Directive 2019/944
4. Enhanced crisis response: strong push for consumer protection this winter (europa.eu)
Declaration for enhanced consumer protection this winter (europa.eu)
5. Revision of the Energy efficiency Directive 2018/2002/EU (COM(2021)558), the revision of Energy Performance of Buildings Directive 2018/844/EU (COM(2021) 802 final)and Social Climate Fund (COM/2021/568 final)
6. Energy Poverty Advisory Hub (EPAH) (europa.eu)