Spotlight on the EU’s newest Member State: Republic of Croatia

The 1st of July 2013 saw Croatia become the 28th Member State of the European Union, following an application for membership in 2003. Situated at the crossroads between Central and South East Europe, Croatia borders Slovenia, Hungary, Serbia, Bosnia-Herzegovina and Montenegro. The following blog post by Harriet Thomson will provide a brief profile of Croatia, a country that has yet to define fuel poverty or energy poverty, focussing on the core drivers of fuel poverty; housing stock quality and energy efficiency, household income, and energy market conditions.

Proxy indicators from the EU Statistics on Income and Living Conditions

The EU Statistics on Income and Living Conditions (EU SILC) is the main dataset presently available for comparative fuel poverty research (Thomson and Snell (2013), and aims to be a ‘‘reference source for comparative statistics on income distribution and social exclusion at European level’’ (Eurostat, 2010: 10). Within the dataset, there are three variables that are commonly used as proxies of fuel poverty given the absence of micro data on household fuel expenditure, these are: inability to keep home adequately; arrears on utility bills; and the presence of a leaking roof, damp walls, floors or foundation, or rot in window frames or floor.

Table 1 below summarises the percentage of Croatian households that reported suffering from each proxy indicator of fuel poverty in 2011 and 2010. The results are shown for all households, and for households with below 60% median equivalised income, which is a standard poverty threshold employed across Europe.

In terms of subjective opinion about being unable to afford to keep the home adequately warm, almost ten per cent of all households in Croatia reported this inability, whilst amongst households below the poverty line, the figure more than doubles in both 2010 and 2011. Moving on to arrears on utility bills, similar trends are observed in terms of a higher percentage of households below the poverty line reporting having experienced this indicator compared with all households, which is unsurprising given the intrinsic link between available financial resources and the ease of paying bills on time. For this indicator, more than a quarter of Croatians across both income groups report having been in arrears on utility bills over the preceding twelve months. The final indicator, presence of leak/damp/rot, shows a reduction of five per cent from 2010 to 2011, for all households, and households below the poverty line. Nevertheless, the percentage of households suffering from this indicator is still high, with nearly fifteen per cent of all households and almost twenty five per cent of households below the poverty line reporting the presence of leaks/damp/rot in the home.

When compared with the European Union as a whole, the proportion of Croatian households stating they were unable to heat their home in 2011 is marginally less than the EU27 average of 9.8 per cent, and well below the 15.8 per cent rate in households in the 12 newest Member States. However, the proportion of Croatian households reporting being in arrears on utility bills is far higher than the EU27 rate (8.8%) and the rate reported across the 12 newest Member States (17.1%).

The remainder of this article will present various data to begin to understand why the three proxy indicators of fuel poverty are so high, starting with income poverty and social exclusion.

Income poverty and social exclusion

Eurostat data on the percentage of the population at risk of poverty or social exclusion shows that compared with the rest of the European Union, Croatia has the fifth highest proportion of citizens at risk, with a rate of 31.3 per cent in 2010 and 32.7 per cent in 2011, as shown in Figure 1.

Figure 1: EU28 risk of poverty or social exclusion. Click to enlarge.

Examining the Human Development Index (United Nations Development Programme, 2013), which is a composite measure of income, life expectancy, and education, reveals that Croatia has very high human development, ranked 47th in the world in 2013, with a score of 0.805. However, when this score is adjusted for inequality based on how income, health and education are distributed across society, Croatia experiences a 15.1 per cent ‘loss’ in potential human development as a result of disparities between socioeconomic groups.

The Eurostat figures on risk of poverty and social exclusion, in conjunction with the Human Development Index and inequality-adjusted HDI, begin to paint a picture of a country experiencing large inequalities in income, health, education and social inclusion, aspects of life which will be exacerbated by, and contribute to, fuel poverty.

Energy consumption and efficiency

As shown in Figure 2, a range of energy sources are utilised by households in Croatia. In 2010, the majority of households used either natural gas (31.7%) or electricity (30.3%), whilst the remaining households used oil products, heat, wood and renewables, and/or coal. Over time, there have been noticeable changes in the share of energy sources used, with an increase in the market share for natural gas (+ 8.8%) and electricity (+ 1.4%) since 1995. By comparison, the use of oil products has reduced by 6.2 per cent since 1995, and coal use is almost none existent, with just 0.3 per cent of households using this energy source.

Figure 2: Shares of energy sources in Croatia. Source: Energy Institute Hrvoje Požar (2012). Click to enlarge.

In terms of energy consumption, analysis of Odyssee data by the Energy Institute Hrvoje Požar shows that between 1995 and 2010 there has been an annual growth in energy consumption in the residential sector of 2.1 per cent per year (Energy Institute Hrvoje Požar, 2012: 8). This translates as an increase in final energy consumption in households of 1,374 kilotonnes of oil equivalent (KTOE) in 1995 to 1,889 KTOE in 2010 (ibid: 22). The authors state that economic growth in the period 1995 to 2008 drove an increase in living standards and the purchasing of electrical equipment (ibid), and subsequent increases in energy demand.

Energy efficiency gains in the residential sector since 2000 have been slow in Croatia, especially when compared with the overall rate for EU27, as depicted in Figure 3, with energy efficiency gains of 3.7 per cent in 2010 compared to the base year of 2000, whilst the EU27 rate was 15.3 per cent. Nevertheless, the trajectory for Croatia is a positive one, with a noticeable increase in energy efficiency gains from around 2006 onwards.

Figure 3: Household energy efficiency gains since 2000. Data: Odyssee. Click to enlarge.

Fuel prices

Moving on to fuel prices, we find that Croatia has comparatively low electricity prices, with a combined Euro per kWh price of 0.138 in 2012, which was the sixth cheapest electricity cost in EU28. Figure 4 displays the breakdown of electricity unit costs, showing the basic price, taxes and levies. Taxes (including VAT) and levies represent a share of just over 20 per cent of Croatian household consumer bills, which is in sharp contrast to Maltese (5%) and UK (4.71%) households, although they have much higher basic unit costs. At the opposite end of the spectrum, taxes and levies represent a significant proportion of Danish and German consumer bills, with taxes and levies accounting for 56.39 per cent and 46.49 per cent of household electricity bills respectively.

Figure 4: EU28 electricity prices. Click to enlarge.

Similarly, 2012 gas prices in Croatia were also among the lowest in EU28, with a combined Euro per kWh cost of 0.0472, which was the third lowest price in the EU. As with electricity, taxes (including VAT) and levies represent a share of around 20 per cent of Croatian household consumer bills. The lowest proportion of taxes and levies are found in the United Kingdom and Cyprus, representing a share of 4.84 per cent and 9.60 per cent of consumer bills correspondingly, whilst the highest proportion of taxes and levies are to be found in Denmark (52.08%) and Sweden (47.16%).

Figure 5: EU28 natural gas prices. Click to enlarge.

However, whilst Croatia has relatively low gas and electricity prices when compared with the rest of Europe, the situation within Croatia is not so positive, with consumers facing rapidly increasing gas, electricity and other fuel costs. One way of calculating the change in prices over time is to use harmonized indices of consumer prices, which Eurostat state are “economic indicators that measure the change over time of the prices of consumer goods and services acquired by households” (Eurostat, 2013). Figure 6 displays the harmonized index of consumer prices for housing, water and fuel in Croatia from 1998 to 2013, showing a marked increase in prices.

Figure 6: Index of consumer prices for housing, water and fuels in Croatia. Source: http://research.stlouisfed.org/fred2/graph/?g=kwb

Summary

Fuel poverty (or energy poverty) has not been formally recognised as an issue in Croatia, but EU SILC data indicates that difficulties in paying utility bills on time and heating the home to an adequate level do exist. In addition to EU SILC figures, data on a range of other elements has been presented in the preceding article, with rather mixed results:

  • Croatia has the 5th highest risk of the population experiencing poverty or social exclusion in EU28.
  • When the Human Development Index is adjusted for inequality, Croatia experiences a 15.1 per cent ‘loss’ in potential human development due to inequalities between socioeconomic groups (United Nations Development Programme, 2013).
  • Energy consumption has been increasing annually, mainly driven by earlier periods of economic growth which prompted improvements in living standards.
  • Since around 2006, Croatia has started to make noticeable gains in energy efficiency, although at a far slower rate than the EU as a whole.
  • Croatia has among the lowest gas and electricity prices in Europe, but there has been a rapid increase over time in the consumer prices for housing, water and fuel for Croatian households.

References:

Energy Institute Hrvoje Požar (2012) Energy Efficiency Policies and Measures in Croatia. Energy Institute Hrvoje Požar, Zagreb.

Eurostat (2013) Consumer prices. [online] http://epp.eurostat.ec.europa.eu/cache/ITY_SDDS/EN/ei_cp_esms.htm (accessed 12th July 2013)

Eurostat (2010) Description of Target Variables: Cross-sectional and Longitudinal. EU-SILC 065/08. European Commission, Eurostat.

Thomson, H. and Snell, C. (2013). Quantifying the prevalence of fuel poverty across the European Union. Energy Policy, 52: 563-572.

United Nations Development Programme (2013) Human Development Report 2013. United Nations Development Programme, New York.

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