Fighting Energy Poverty While Reducing GHG Emissions

by  Marc Lee, Canadian Centre for Policy Alternatives and Co-Director of the CCPA’s Climate Justice Project.

Marc LeeIf BC is going to meet its climate action targets, the province needs to shift away from natural gas and rely instead on clean electricity. Coupled with aggressive conservation and energy efficiency investments, this transition could be the source of new green jobs, particularly in the residential housing sector.

The challenge is this: while upper-income households tend to consume (and waste) more energy, it is low-income households who spend a larger share of their incomes on energy, and are the most constrained in terms of changing their behaviour.

This means that across-the-board price increases can worsen energy poverty, a condition where a household spends a disproportionate share of their income on energy. Living in energy poverty poses a range of health risks, including respiratory, cardiovascular, and other health problems, as well as preventable winter deaths.

BC Hydro’s proposal earlier this year to dramatically increase electricity rates is a case in point. While a recent review of BC Hydro led to compromise that would slow rate increases for the next couple of years, higher prices are to some extent inevitable due to the higher costs of new electricity supplies, the installation of smart meters, and new capital projects.

More than three-quarters of energy in the home is used for temperature control and hot water. For low-income households – especially ones with electric baseboard heaters – the real issue is keeping the heat on.

Lower-income households already spend a greater share of their income on energy. The bottom 20% of households spent 5% of their total income on energy in 2009, and 3% of income just on electricity. Households in the top 20% spent only 1.5% of their total income on energy, and less than 1% on electricity.

But BC Hydro also shows us what a fairer path could look like. The shift to two-tier pricing in 2008 has moved modestly in this direction, with modest savings for low-income households and increases for higher-income households. The greediest 20% of electricity consumers use up 44% of the residential power, and they should indeed pay more.

energypovertyIf electricity price increases are needed, they should be concentrated on the second tier of rates. Increasing refundable tax credits for low- to middle-income households could also offset price increases. Assessing the impacts of pricing policies across income levels needs to be part of the BC Utilities Commission’s rate approval process.

The BC government can also help by delivering targeted energy efficiency programs for low-income households and multi-unit buildings, including rental units. Low-income households are typically renters. This means they are less likely to have capacity to invest in energy efficiency upgrades.

Currently, the vast majority of public subsidies for retofits (for example, BC’s LiveSmart program) goes to affluent homeowners in single-family dwellings. Existing programs have been criticized for two common problems: free rider effects (public subsidies going to households who would have made investments anyway) and rebound effects (where savings are offset by increased energy use).

In contrast, well-designed programs for energy efficiency for low-income households are “low-hanging fruit” that would dramatically reduce these effects, target some of the province’s least efficient housing stock, and make better use of public dollars.

A danger is that electricity price hikes will create a perverse incentive for people to switch to natural gas for their home heating. In the Lower Mainland, the delivered cost of natural gas is about half the cost of the lower tier electricity rate and 39% of the tier two rate.

But this would add to BC’s greenhouse gas inventory at a time when the province needs to reduce and eventually eliminate those emissions. This should be a key component of a next generation LiveSmart program for BC, and it should also be linked to green job creation and skills development.

We estimate a budget of $220 million per year in support of a decade-long retrofit of BC’s housing stock would lead to substantial reductions in GHG emissions and energy poverty in BC homes. Carbon tax revenues are an ideal source of public subsidies for such a program.

This investment would lead to 12,000 direct green jobs per year (and a total increase in employment of 20,000 jobs if we include indirect and induced job creation).

The challenge of the next generation is to enable a smooth transition to zero-emissions housing, while paying attention to impacts on low-income households and other vulnerable populations, as well as the housing stock where they live.

Rather than trying to sell more polluting fossil fuels to Asia, the BC government should be leading the charge on climate action. A coherent housing strategy could provide win-win opportunities for the province, and is the type of jobs program BC needs.

Marc Lee is a Senior Economist with the BC Office of the Canadian Centre for Policy Alternatives and Co-Director of the CCPA’s Climate Justice Project. This article is based on a new report, Fighting Energy Poverty in the Transition to Zero-Emission Housing: A Framework for BC, available at www.policyalternatives.ca

http://www.cehe.ca/energypoverty

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