Learning from Europe's fight against energy poverty

European countries are trying their best to adopt a targeted approach for finding acceptable solutions to reduce the impact of high energy prices on their socio-economic platform. A more effective move forward according to energy analysts might be able to help them in overcoming the high cost-of-living situation that is slowly unfolding throughout Europe.
Energy analysts Philipp Lausberg and T. Croon have in this context made an analytical review of the existing situation and what is being done or needs to be done to assist those most in need because of high inflation. One needs to follow carefully what is happening in Europe so that one can find possible alternative courses of action for countries within our region, including Bangladesh.
We have seen soaring energy prices in Bangladesh in the recent past and the general criticism that has followed. In this context one needs to remember that gas prices in Europe reached a peak of Euro 346 per MWh in August 2022. At present, gas prices in Europe are still almost four times higher than the long term average of this century. Many geo-analysts now think that energy prices in Europe will remain high for the rest of this decade due to geopolitical instability and the transition to low-carbon sources in that region. Such a scenario is almost certain to have an impact on Bangladesh.
Lausberg and T. Croon have given interesting observations about the equation of energy price increase affecting the cost of living for all Europeans. They have also pointed out that this is not evenly distributed across the population. One needs to note here that this is true for almost all countries around the world.
It has to be mentioned here that an International Monetary Fund study carried out recently has indicated that the cost-of-living increase from higher energy prices for the poorest 20 per cent of Estonian households was 25 per cent, while this was only 14 per cent for the 20 per cent of the richest. Such an anomaly appears to be taking place also in most of South Asia, Southeast Asia and most of Africa and Latin America. In most European countries, the average energy burden - the proportion of income spent on domestic energy services-- is about twice as high for the poorest 20 per cent than for the richest 20 per cent, although the latter group is consuming considerably more energy.
Such an evolving situation of disparity is clearly visible in Europe and attempts are being made to take care of the situation. Bangladesh is also trying to create the necessary format which can tackle such a scenario through a juxtaposition of different factors. The common approach should be to distribute the burden justly. Efforts are being made to not only guarantee availability of energy for all but also provide incentives for energy conservation to alleviate pressures on energy prices and supply. Alternative sources of energy, particularly renewable energy, are also receiving careful attention.
It is generally agreed that some EU governments have spent heavily to tone down the effects of rising energy costs. It appears that in this regard between September 2021 and November 2022, around Euro 600 billion was earmarked to protect consumers and small businesses. The German support packages were probably the highest with about Euro 264 billion. It juxtaposed targeted income support for vulnerable customers with untargeted price support measures. However, while the German price-breaks for gas and electricity maintained market tariffs for excessive usage, tax cuts and reduced excise duties took away incentives for households to lower their consumption. These policies effectively subsidised the energy consumption of all households, including non-essential luxuries.
However, last December, relevant European authorities reported that over 70 per cent of European measures were untargeted. Nevertheless, such untargeted tools, it may be mentioned, sometimes have drawbacks despite being politically popular and relatively simple to implement. They weaken incentives for all households to reduce energy use and subsidised high-income households tend to consume more energy. That creates higher inflationary pressures than the support extended for those who really need it. We noticed that some of this is also true in developing countries including Bangladesh, particularly in urban households.
It would also be appropriate to mention here about some of the other socially targeted measures that have been introduced in Europe. These are being done to speed up energy efficiency and include-- block pricing, social tariffs, rebates and income support. Bangladesh needs to understand the different denotations of this exercise and identify factors which may be of use for us.
Block pricing as a model is functioning well in Germany. Under the system consumption below a certain threshold is priced at below market rates and above the threshold at market rates. The required threshold is decided on historic consumption of individual households or on average consumption. Germany, Austria, Estonia, Poland and Netherlands are associated with such efforts. This is done with the understanding that high income households will have higher consumption and will be able to pay more if needed.
In many cases critics have opined that such a principle of block pricing is sub optional. Nevertheless, it has been noticed that such an effort is being seen as an incentive by many households to keep consumption at a basic level.
Such tariffs have been introduced in many European countries- Belgium, Bulgaria, Cyprus, France, Greece, Italy, Portugal, Romania and Spain. In this context, after careful evaluation by economists and energy analysts limits are being decided upon with regard to limits of energy prices to be paid by low income groups that will include, as in the case of Belgium, pensioners, single parents and lower middle income groups. It is being estimated that such a principle is covering nearly 20 per cent of the households. This has led to rates for electricity and gas under the social tariff increasing between 7.8 and 9.3 per cent for this year's first quarter. There has, however, been greater enhancement of rates for households outside this paradigm.
Another interesting measure has been introduced in some European countries. That includes rebates and energy vouchers, or energy assistance programmes, and covers direct income support to households struggling to pay energy bills. The UK, no longer a part of the EU has been trying to implement a more data-driven approach which is now being termed as "Warm Home Discount".
Those associated with this process and the mechanism undertaken in the EU are also discussing interest-free loans from government institutions and also thinking of providing landlords with stronger incentives, whereby they could be obligated to participate in financing the energy support for their low income tenants, until they have made their properties more energy-efficient.
These measures in Europe are being studied carefully in Canada and the USA. We, in Bangladesh also need to think of measures for our near future. The relevant authorities should also try to design targeted support schemes based on data-driven approaches to address the impact of energy crisis and ensure a just transition to other low-carbon sources.

Muhammad Zamir, a former Ambassador, is an analyst specialised in foreign affairs, right to information and good governance.
muhammadzamir0@gmail.com