Alleviating energy poverty – with fossil fuels?

To combat energy poverty, governments should direct funding to energy efficiency options and clean technologies that offer a structural solution to rising energy bills, rather than supporting fossil fuel heating, writes Vlasios Oikonomou. 

Vlasios Oikonomou is the managing director of the Institute for European Energy and Climate Policy.  

To comply with the new EU energy and climate targets, member states must submit their National Energy and Climate Plans (NECPs) including policies and measures for energy efficiency, renewable energy, security of supply, climate resilience and adaptation.

Several member states are focusing on energy poverty, by addressing it with financial support for the energy upgrade of residential buildings and the purchase of more efficient appliances. 

Energy poverty results from three conditions: poor condition of buildings, low disposable income and rising energy prices.

Some countries, such as Greece, combine all the elements, leading to an extreme urge to address the problem.

The only structural way to reduce energy poverty is by improving energy efficiency in buildings and reducing households’ dependence on burning fossil fuels, alongside targeted financial support for the most vulnerable groups.

The faster transition from fossil fuels in buildings such as oil and gas can reduce the uncertainty for energy-poor groups due to the risk of price volatility, whereas stronger regulations can help avoid lock-in effects to fossil fuel heating.

Examples of these regulations are the new Emissions Trading Scheme for buildings and transport as of 2027 coupled with the Social Climate Fund, the new Energy Efficiency Directive and the two pieces currently under negotiation, the Directives for energy performance in buildings (EPBD) and the new Ecodesign Directive. 

Despite the policy trends for heating decarbonisation in buildings to protect the energy poor, some countries make use of EU regional funds (from the expiring funding from the 2014-2020 period) to finance measures that are not directly in line with the 2021-2030 energy and climate objectives.

In the case of Greece, for example, there is an expected programme, subsidising new fossil gas heaters in two cities in the Peloponnese, where the gas grid is being constructed nowadays, with the aim of reducing energy poverty.

Another similar programme foresees the connection of new gas heaters to public buildings by 2023. Is that an appropriate market signal?

It is questionable, as shown by a study carried out by the Institute for European Energy and Climate Policy in the framework of the European LIFE project Regio1st (for the implementation of the Energy Efficiency First principle in EU regions).

There is no economic logic as to why it was chosen to address energy poverty in these two areas with fossil gas rather than energy upgrading of homes and electrification of heating.  

To optimise public spending, the financing must be justified in terms of economic and social viability.

The study showed that if instead of financing the substitution of oil to gas boilers with €12 million, funding was given to other options like residential energy upgrades, photovoltaics on the roof, heat pumps and nearly zero energy buildings, 5,000 households could be structurally taken out of energy poverty.

The public funding should thus be directed to these alternatives as their economic and social viability are higher than the shift to gas boilers. 

Given the fact that other member states might use similar funding for related fossil heating technologies, it is particularly important for the European Commission to examine carefully whether this financing is politically, economically, and market-wise correct.

This public investment to substitute fossil fuel heating is economically unsustainable for both energy-poor households and society as a whole, as it leads to lock-in fossil fuel heating.

Politically, it also gives the wrong signal about what countries declare in the NECP and what they actually do, and worse still, politicians announce publicly that the EU is financing these new connections to gas boilers, creating an utterly wrong perception of the climate targets.

Finally, in market terms, it unilaterally subsidises fossil fuel technology, while cleaner technologies such as heat pumps and energy efficiency upgrades in buildings are part of more complex subsidy programs with lower financing rates. 

If such public financing takes place in the short to medium run, it can jeopardise the achievement of national and EU energy savings targets, as happened in Greece, which fell by 25% in its 2014-2020 energy savings target and is performing poorly in energy efficiency since then.

To avoid future lock-ins of energy-poor households in fossil fuel heating, governments and municipalities (through their heating and cooling plans) should direct funding towards energy efficiency upgrades to reduce the households’ energy bills.

Several member states have similar types of financing: It is hence time for the EU to better scrutinise funding for alleviating energy poverty that leads to lock-in to fossil fuel heating and for all actors to understand that we need to move towards our new goals and provide the right signals to the market.