Measuring fuel poverty in France: Which households are the most fuel vulnerable? Bérangère Legendre, Olivia Ricci To cite this version: Bérangère Legendre, Olivia Ricci. Measuring fuel poverty in France: Which households are the most fuel vulnerable?. Energy Economics, Elsevier, 2015, 49, pp.620-628. 10.1016/j.eneco.2015.01.022. hal-01283999 HAL Id: hal-01283999 https://hal.univ-grenoble-alpes.fr/hal-01283999 Submitted on 7 Mar 2016 HAL is a multi-disciplinary open access L’archive ouverte pluridisciplinaire HAL, est archive for the deposit and dissemination of sci- destinée au dépôt et à la diffusion de documents entific research documents, whether they are pub- scientifiques de niveau recherche, publiés ou non, lished or not. The documents may come from émanant des établissements d’enseignement et de teaching and research institutions in France or recherche français ou étrangers, des laboratoires abroad, or from public or private research centers. publics ou privés. Measuring fuel poverty in France: which households are the most vulnerable? Bérangère Legendrea and Olivia Riccib a Université de Savoie - IREGE 4, chemin de Bellevue, BP 80439, 74944 Annecy-le- Vieux, France ; [email protected] b Université de la Réunion - CEMOI, 15 avenue René Cassin, BP 7151, 97715 St-Denis, La Réunion ; [email protected]; Corresponding author : 0692415044 - 0262938451 Abstract Fuel poverty is a growing concern in France. Following the hike in energy prices that started in 2004, the problem of energy affordability for low-income households entered the political debate with the “Grenelle de l‟environnement” in 2007. According to the standard UK definition (10% ratio) 3.8 million households were subject to fuel poverty in France in 2006. We question the way fuel poverty is currently measured and compare the impact of alternative measurement approaches on the extent and composition of fuel poverty in France. Then, we identify and characterize vulnerable households that are not ordinarily poor, but can be pushed into poverty because of their fuel bills. A logit, a clog log and a mixed effect logit model are used to analyze which factors influence the probability of vulnerable households to fall into poverty. The study indicates that the proportion of fuel poor people and their characteristics differ significantly depending on the fuel poverty measure chosen. The econometric results show that the probability of falling into poverty is higher for those who are retired living alone, rent their home, use an individual boiler for heating, cook with butane or propane and have poor roof insulation. Current French fuel poverty reduction policies appear to be inappropriate given our conclusions. Keywords: Fuel poverty, vulnerable households, poverty indicators, clog log model 1 Introduction Fuel poverty in developed countries is a serious problem from three main perspectives: poverty and reducing it; health and well-being; decreasing carbon emissions and saving energy (Hills, 2011). These issues are quite different from those raised in developing countries, where energy poverty addresses especially the question of the access to modern energy sources (Nussbaumer, et al. 2011). The existing literature discussed extensively the link between energy poverty and global development issues: energy is central to eradicate poverty in the developing world, and improving human welfare (UNDP, 2000; IAEA, 2005, Pachauri et al., 2004; Pachauri and Spreng, 2004, 2011). Fuel poverty and energy poverty must consequently be distinguished (Li et al, 2013). We focus in this article on fuel poverty. Fuel poverty was first defined as the difficulty for households to afford adequate warmth in their home (Lewis, 1982). Boardman (1991) showed that fuel poverty occurs when a household needs to spend more than 10% of its income on fuel costs in their home to maintain satisfactory indoor temperature. In France, Devalière et al (2011) showed that 3.5 million of households suffered from cold in their home in 2006 and 3.8 million spent more than 10% of their income to pay their energy bill. Fuel poverty in developed countries has several causes which are almost always combined: low-energy efficient housing, rising fuel prices, and low incomes (EPEE, 2006; IEA, 2011; Rappel, 2011; Palmer et al., 2008). There is a considerable overlap between fuel-poor households and those with low incomes. Using a widely adopted income poverty measure (60% median equivalised income threshold), Palmer et al. (2008) showed that nearly three quarters of the fuel poor in England in 2005 were also income poor. From a definition point of view, many institutions and countries showed that monetary and fuel poverty were inextricably linked, representing both an aspect of multidimensional poverty. For instance, the Energy Act 2010, which introduces the concept of reducing both the extent and the depth of fuel poverty in the UK, defines fuel poverty as a dual issue, involving households on low incomes faced with unreasonable fuel costs. In France, the current fuel poverty policy was created in 2010 during the French environment roundtables called „„Grenelle de l‟environnement‟‟, under the law “Grenelle 2” n° 2010-7881. The law defines the concept of fuel poverty. A person suffering from fuel poverty is “anyone who encounters, in their home, particular difficulties in obtaining the energy required to meet their basic energy needs due to insufficient resources or housing conditions”. The law has since been complemented by a measurement approach inspired by the United Kingdom2. According to the 2001 UK Fuel Poverty Strategy, a household is considered to be in fuel poverty if it needs to spend more than 10% of its total income before housing costs on fuel to heat its home to an acceptable level. There are numerous criticisms of the current 10 % objective measure, the main one being that it fails to capture all of the main drivers of fuel poverty (Hills, 2011). In fact, this ratio can capture households with high energy costs, but not all of these households are on low incomes. This is why significant numbers of households with relatively high incomes have been found to be fuel poor even though they should be able to absorb the cost of higher bills (Hills, 2011; Moore, 2012). Other households can even be pushed into poverty because of energy costs without reaching the 10% ratio. Therefore, much debate focuses on how to measure fuel poverty given the potential difficulties in identifying one single indicator that will satisfactorily capture all of the issues. In order to target low-income households, fuel poverty can be studied from a perspective of poverty concern in general, using the after fuel cost poverty approach (Hills, 2011). This consists in measuring residual income (i.e. after housing and fuel costs) and comparing it to an 1 Loi n° 2010-788 du 12 juillet 2010 portant sur l‟engagement national pour l‟environnement. 2 This complementary fuel poverty measure is not included in the law. 2 income standard such as the poverty line (threshold of 60% of the national equivalised income level). There is a clear interest in establishing whether some households may be exposed to poverty because of high fuel costs. Hills (2011) has also proposed an alternative measurement framework focusing directly on the overlap of high costs and low income (the Low Income- High Costs indicator). Little empirical research has been undertaken on fuel poverty in France. The European Fuel Poverty and Energy Efficiency Project (EPEE project) in 2006 proposed a descriptive approach of fuel poverty in France using three subjective criteria (capacity to pay to keep one‟s home warm, the existence of dampness, leaks, mould in the accommodation, and the arrears on electricity, gas and water bills). Depending on the subjective criteria the composition of the fuel Poor differed significantly. Therefore, this approach failed to precisely characterize fuel poverty. Although the redistributive architecture and the welfare State are known to reduce the monetary poverty quite efficiently in France (Cazenave et al., 2011). However policy makers face some difficulties to target efficiently the fuel Poor and to decrease this form of poverty. Policies attempting to reduce fuel poverty in France have been designed using only the restrictive 10% ratio, which is subject to criticisms as we have seen. This article examines the multiple aspects of fuel poverty in France according to different existing measurement approaches: the “10% ratio approach”, “the after fuel cost poverty approach”, and the “Hills approach” (Low Income High Costs indicator) and proposes a complementary approach. Using those three measurement approaches do not allow identifying households that are at risk of falling below the poverty line specifically because of high fuel costs. This study represents the first attempt to define what fuel vulnerability is by studying households on the edge of poverty. Households can be classified as vulnerable in the sense that they are a priori non-poor before the fuel bills but a marginal increase in energy prices is enough to make them slip below the threshold3. Such an approach allows us to identify the impact of high fuel costs on the margins of poverty. A specific policy targeting such households could be implemented to help them shift above the threshold and therefore reduce the extent of fuel poverty in France. This paper attempts to provide some answers to the following question: what are key factor of fuel vulnerability