Low income families footing the bill for renewable energy

The financial burden of investing in renewable energy is falling on those less well off, according to our Senior Lecturer, Dr Lawrence Haar.

Dr Lawrence Haar, Senior Lecturer in Finance

At a time when the UK has seen a large rise in the number of people claiming unemployment benefit during the first full month of the coronavirus lockdown, Dr Haar, Senior Lecturer in Finance at the Brighton Business School, writes in his article ‘The Fiscal Incidence of Renewable Energy Support in the European Union’ that lower income families, typically those in the smallest homes and often in rented accommodation, are cross-subsidising the green energy investment and consumption of those on higher incomes.

Comparing retail electricity prices across the EU over ten years with how Renewable Energy is supported, Dr Haar finds that the costs of inducing private investment falls disproportionately and regressively on lower income families. This has occurred because of the largely fixed-cost nature of renewable energy.

Spreading the fixed costs of Renewable Energy over larger volumes of consumption, in effect, produces a big discount for the largest consumers – typically wealthier households in larger homes.

Dr Haar said: “Though as a society we may benefit from reducing dependence upon fossil fuels, under existing market structure, the burden of the transition falls upon those in the smallest households and the lowest income”

“At the petrol pump, regardless of the value of our vehicle, we all pay the same.  How would we feel if Bentley owners paid less per litre than those driving a Ford Fiesta?”

“Relying upon deregulated, privatised electricity markets for the transition to Renewable Energy raises questions over fairness and social equity.”

“Households in smaller, often rented, accommodation, commonly reliant upon electricity for heating, are, in effect, cross subsidising the green life-style of middle and upper-income cohorts.”

Read Dr Haar’s full Energy Policy article.