Energy Poverty in Italy

In the first ever EUFPN blog post on Italy, Ivan Faiella and Luciano Lavecchia [1] look at energy expenditure shares over time, the role of different indicators, and policy responses within Italy. 

Introduction

In Italy, between 2000 and 2013, the share of energy (heating and electricity) on total households’ expenditure increased by 1 percentage point (reaching almost 6 percent – fig. 1a). Since energy consumption is inelastic, at least in the short run, this growth was mainly determined by higher energy prices. As the share of energy expenditure is unevenly distributed, poorer households were mainly affected; in 2015 families in the lowest 10 percent of expenditure distribution spent more than 4 percent of their budget in energy (compared to the 1 percent expended by affluent households – fig. 1b).

Figure 1

Share of energy expenditure of Italian households

(as percentage of total expenditure)

Figure 1a) between 2000-2015

Figure 1b) by tenth of expenditure (2015)

Source: authors’ computation on Istat data.

This surge in energy expenditure poses the risk that an increasing number of households will not be able to purchase an adequate amount of energy goods and services, an issue known as “Energy Poverty” or, alternatively, they will be obliged to allocate an excessive amount of their budget to their energy needs, a concept known as “vulnerability”, thus compressing their purchasing power.

Energy poverty may affect people’s health, by increasing the risk of cardiovascular or respiratory disease amplifying the number of excess winter deaths especially in colder areas. The costs for the community can be significant both in terms of direct (e.g. due to the pressure on the health care system) and indirect (e.g. the reduction of productivity and output) effects.

This debate is particularly interesting as the Italian Parliament is on the verge of completing the liberalization of the energy retail markets and some stakeholders are afraid of the impact of this measure on the less affluent families.

 Energy Poverty in Italy

Italy has been tackling Energy Poverty for almost a decade; to counterbalance the rising energy costs that followed the 2008 spike of oil prices, the Government approved a means-tested support for electricity and gas bills (gas is the main space heating choice among Italian households). However, the country is still lacking an official definition and measure of Energy Poverty, while there is some evidence that these instruments are not completely effective[2][3].

In a paper published in 2015[4], we present and assess a number of indicators to headcount energy poor families. A first group of indicators (“relative measures”) estimate the number of households whose share of energy expenditure exceeds a specific benchmark (such as 10 percent of income or twice the average/median). Another group (“subjective”) relies on households’ personal assessment of their situation, such as whether their home is not adequately warm. Third we consider a class of composite measures, which classifies households as energy poor when they have high energy costs and, at the same time, after these costs are deducted from their budget they are left with a residual amount of resources (income or expenditure) below the official poverty line (so called “Low income High Costs” – LIHC – indicator adopted in England since 2012[5]). Eventually, we propose an LIHC indicator, that fits into the Italian context and define as energy poor those households with a share of energy costs more than twice the average share of energy expenditure and with an household budget, after energy costs are deducted, that is below the national (relative) poverty line. To these ones we also add those families without heating purchases and total expenditure below the median (so called “hidden energy poor households”); the rationale for including this group is that these households are likely to be materially deprived and might not even be able to afford to have a heating device in their dwelling[6]. Following this approach we estimate that between 2004 and 2015 Energy Poverty involved around 8 per cent (or 2.1 million) of Italian households, far below the recent evaluations of the European Commission (17 percent), based on a set of survey-based subjective measures (fig. 2).

Figure 2

The picture of Energy Poverty in Italy according to different measures

Source: authors computation on Istat data.

 

 The road to a National Strategy against Energy Poverty

A few months ago the Commission, in releasing its Winter package assessments, requested a list of obligations to each member state, including the need to define a set of criteria to measure and to monitor Energy Poverty; each member state should also report every two years on the progress in contrasting Energy Poverty (within the Integrated National Energy and Climate Progress Reports).

The Italian Government has integrated these indications in its 2017 National Energy Strategy[7], currently under public consultation, dedicating a specific paragraph to the topic of Energy Poverty and confirming that the Italian Government is committed to:

  • adopt an official definition and a national measure of Energy Poverty;
  • perform a thorough review of the existing policies;
  • create an Italian Energy Poverty Observatory (IPOV) which will work in coordination with the European Energy Poverty Observatory (EPOV).

Conclusion

There is a lively debate going on in Western countries and especially in Europe about Energy Poverty. Given the continental long term consequences of climate change, future energy needs will be determined not only by adequate heating but by satisfactory cooling as well. One of the best strategies to tackle the issue will be to design measures that will help improving dwelling energy efficiency. Italy has a decade long story of measures against Energy Poverty but it is working with the Commission to design a more comprehensive approach. However, besides a transition period, national regimes should converge towards a unified and coordinated approach, sharing not only the same definition but measurement as well, so that Energy Union might progress and an internal energy market might effectively work.

 

[1] Ivan Faiella (Bank of Italy); Luciano Lavecchia (Bank of Italy and Ministry of Economic Development). The views expressed are those of the authors and do not involve the responsibility of the institutions to which they belong.
[2] According to art. 33 of law 122/2016, all households whose ISEE (a composite indicator which takes into account both income and wealth) is below 7.500 EUR are classified as vulnerable consumers.

[3] Miniaci et al (2014),”Energy affordability and the benefits system in Italy”, Energy Policy, Volume 75, December 2014, Pages 289–300; Faiella, Ivan e Lavecchia, Luciano, (2015), “Energy Poverty in Italy” Politica economica, Società editrice il Mulino, issue 1, pages 27-76, doi: 10.1429/80536.

[4] Faiella, I. and L. Lavecchia, (2015), ibidem.

[5] Each nation in the UK has its own measure: “LIHC” for England, “10 percent rule” for Wales, Scotland and Northern Ireland (link).

[6] We are currently developing a new fuel poverty measure using a new database that integrates information on dwelling energy needs, survey-based households characteristics and aggregate statistics.

[7] Italian 2017 National Energy Strategy, pp. 171-175 (link).

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