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Out in the cold

07 April 2015

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Noel Chan is a PhD scholar at Crawford School of Public Policy.

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Many Australians are having to make difficult choices between eating or staying warm, writes Noel Chan.

Imagine shivering through the bleakest winter without an external source of warmth; no heater, no electric blanket, no roaring fire, no oven for radiant heat.

While it sounds like a life taken straight from a Dickensian novel, for too many Australians rising energy prices are forcing them to choose between food and power. It’s become such a familiar phenomenon that there’s even a term for it – fuel poverty.

The statistics show that this fuel poverty is on the rise in Australia. In just the first nine months of the 2013/2014 financial year, the Australian Energy Regulator reported 25,900 cases of electricity disconnections, 1,000 more cases than the previous financial year. There has also been an increase in complaints received by the State Energy and Water Ombudsmen related to utility affordability challenges, such as utility debts, customer credit rating, and being contacted by debt collectors.

Fuel poverty was first recognised as a social problem in the United Kingdom in the early 1990s by researcher Brenda Boardman. She found that fuel-poor households usually spent more than 10 per cent of their income on energy services. They lived in poorly-insulated homes, suffered from health problems, and survived under the weight of multiple financial stressors and hardship. Their inability to afford heating and other energy services further exacerbated their health and poverty situations.

By the late 1990s, fuel poverty was firmly on the political agenda in the UK. Policy responses included The Warm Homes and Energy Conservation Act of 2000 and the publication in 2001 of the UK Fuel Poverty Strategy, which aimed to eliminate fuel poverty by 2016. Following the lead of the UK, Ireland, New Zealand, and the European Union now have policies and initiatives to tackle fuel poverty.

In Australia, the concept of fuel poverty was considered in the mid 2000s in response to the increase of energy prices. However, no specific policies or initiatives have been developed.

Government-led infrastructure, pricing and market reforms since then have made tackling fuel poverty even more challenging. While reform may have been necessary, most have meant the traditional social objectives of energy provision have diminished.

The general belief that in a privatised, competitive market, energy prices will become cheaper hasn’t eventuated; the prices of electricity and gas have continued to increase at a much faster rate than the consumer price index in the past five years. Extra costs associated with carbon reduction schemes have added to the upward price pressure. These costs are inevitably borne by energy customers, with the poor bearing a disproportionate burden.

Government incentives, including the Renewable Energy Target, solar panel rebates, and feed-in-tariffs, have further polarised energy inequality between the rich and the poor. With the financial capacity to install alternative energy sources, wealthier households can reduce their electricity bills to nil or even earn income from energy supplied back to the grid; while poor households are paying more despite using less energy overall.

No wonder more Australian households are joining energy hardship programs, or requesting alternative payment plans. No wonder that more aged pensioners are reluctant to turn on heaters during winter and more families are visiting food hubs to buy subsidised groceries.

At present, state energy concessions are the main mechanism to ease the energy burden among eligible households. However, my analysis found that the current concession schemes are inconsistent, inequitable and inefficient to target the fuel poor. Some households who are not fuel poor are eligible for concessions, while some fuel-poor families without concession cards are excluded from assistance. Only a quarter of the concession expenditure was allocated efficiently to reduce fuel poverty.

But bill reductions are a short-term approach to tackling fuel poverty which deal with the symptoms of the problem, not the cause. There are two main failings of the current energy concession system: first, it is not designed to target fuel poor households; and second, it is reactive, not a proactive, approach which fails to tackle the root causes of fuel poverty – the quality of the housing stock, the cost of fuel, and the widening gap in energy inequality. People on low incomes generally live in energy-inefficient homes with limited financial capacity to improve energy efficiency. Investment in energy efficiency or renewable energy for fuel-poor households can both save concession budgets and reduce the energy burden of the poor in the long run.

Despite the recent repeal of the carbon tax, additional costs associated with fighting climate change in the future are unavoidable. A more proactive and inclusive approach is required in any new energy policy so that fuel poverty and energy inequality are not intensified.

The fuel poverty policy void has to be addressed as a matter of urgency before it gets to the point where we start seeing people perishing in Australia due to inability to afford basic energy utilities. We need to stop leaving the most vulnerable behind.

This piece was first published by Policy Forum.net - the website of the Asia and the Pacific Policy Society: http://www.policyforum.net/out-in-the-cold/

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