Energy Poverty Puzzle - Barış Sanlı


“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their self-interest,” claims Adams Smith. The same logic may be applied to the other areas if you think this is a correct statement. It may not be from the benevolence or climate awareness of the banks or green collars that they support green projects. It is all down to self-interest.


Climate change will affect the poor in two ways. The mitigation and disaster costs will be substantial for low-income groups. But the policy costs will further increase the burden on specific segments of these income groups. In Africa, solar pas-as-you-go services may bring some relief and energy services for those in need. But in developing and developed countries, there are still questions to be asked.


According to Austrian regulator EControl’s Household Energy Price Index for Europe, Household Energy Price Index’s electricity prices excluding taxes have risen in the past ten years. The rise is unusual since gas prices have a cyclic behavior, and they are 5% below 2015 and %3 below 2019 levels. But with more “cheaper than fossil” prices of renewables, the cost of electricity for households kept increasing where natural gas prices have dropped.


The primary issue is not the policies or government guarantees for clean energy but how the masses will cope with the results of these policies and financial burdens. If the poor will be impacted by climate change and measures twice (both as a result of climate events and policy costs), they will be the ultimate loser.


If one part of the society will be affected by such adverse processes, someone must be on the winning side. One side loses twice, and then some other party must be winning. Who is that winning side? Who is the new rentier class of energy transition?


In Cato Institute’s analysis from 2002, Patrick Micheals’s article “Why Enron wants global warming?” is an exciting piece. Enron, one of the biggest corporate frauds and bankruptcy in the energy industry, was pushing for a cap on carbon emissions, so that they may profit from the results. Just like big oil companies, the other energy companies have nothing to do with benevolence or saving the world. If extracting minerals are not profitable, new policies may always be a source of profit. Enron was openly against global warming policies, but they see the light and enlightened by it if you believe so.


So someone has to take the energy poverty problem more seriously. One specific example is about how such policies will hit coal-producing regions. Suppose you invested all your life savings into a house in one of these regions where you live with your family. You may even take some bank credit to open a small business there. Overnight your house’s value will depreciate, and some government policy will dim your business prospects. Then a new training policy will try to teach you new tricks, and hopefully, you will have a new job. Hopelessly you may lose all your life’s savings, experience, and investments.


This week Nobel Prize has been awarded to three scientists “for their experimental approach to alleviating global poverty.” One of the important results of their work is regarding randomized control trials. Why this is important for this article is when it comes to energy poverty or poverty resulting from energy transitions, there may not be apparent solutions but trials to find effective interventions.


One example can be how energy subsidies and supports affect children’s health and infant mortality. What is the best way to eradicate illnesses and problems because of insufficient access to energy and heating?


As the companies -whether green or black- have no benevolence for saving the world, they have no motivation to keep the poor. As long as there are predictable cash flows and investment environment, self-interest does its job. As energy prices increase, there are better profits or incomes for most of them, including governments. With the poor paying the costs for climate change twice and companies profiting twice, a world with Morlocks and Elois of climate change is not a distant reality.


There are ways to improve the situation. First of all, we have to look at energy poverty from a climate change perspective. A carbon tax or green tax should be allocated to poverty policies with an energy transition in mind. Companies should be incentivized to design creative programs to mitigate such poverty issues in their sustainability projects. Most of all, whether for electric cars or renewable energy or efficiency, priority should be given to low-income groups. Otherwise, the new rentier class of energy transition will be too busy with their self-interests to lend a hand to a social disturbance in the making.


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