tag:theconversation.com,2011:/global/topics/rising-energy-costs-6070/articlesrising energy costs – The Conversation2023-05-01T06:42:41Ztag:theconversation.com,2011:article/2046722023-05-01T06:42:41Z2023-05-01T06:42:41Z1 in 4 households struggle to pay power bills. Here are 5 ways to tackle hidden energy poverty<figure><img src="https://images.theconversation.com/files/523558/original/file-20230501-14-l8bw6m.jpg?ixlib=rb-1.1.0&rect=592%2C0%2C5398%2C3583&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><a href="https://energyconsumersaustralia.com.au/news/how-increases-in-energy-prices-are-impacting-consumers#:%7E:text=Energy%2520affordability%2520is%2520not%2520just,in%2520the%2520past%252012%2520months.">One in four Australian households</a> are finding it hard to pay their gas and electricity bills. As winter looms, <a href="https://www.aer.gov.au/news-release/default-market-offer-2023%25E2%2580%259324-draft-determination">energy price rises</a> will make it even harder. Cold homes and disconnections resulting from energy poverty threaten people’s health and wellbeing. </p>
<p><a href="https://www.acoss.org.au/wp-content/uploads/2023/03/ACOSS-cost-of-living-report2-March-2023_web_FINAL.pdf">Income support for welfare recipients</a> and retrofitting homes to make them more thermally efficient – by adding insulation, for example – can ease the burden. And when homes are not too cold or hot, <a href="https://theconversation.com/fuel-poverty-makes-you-sick-so-why-has-nothing-changed-since-i-was-a-child-living-in-a-cold-home-201787">people’s health benefits</a>. This in turn <a href="https://apo.org.au/node/319556">eases pressure on the public health system</a>. </p>
<p>However, many people are missing out on assistance as programs often do not recognise their difficulties. Their energy vulnerability is hidden.</p>
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Read more:
<a href="https://theconversation.com/if-youre-renting-chances-are-your-home-is-cold-with-power-prices-soaring-heres-what-you-can-do-to-keep-warm-184472">If you're renting, chances are your home is cold. With power prices soaring, here's what you can do to keep warm</a>
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<h2>What forms does hidden energy poverty take?</h2>
<p><a href="https://www.sciencedirect.com/science/article/pii/S2214629623000737">Our newly published study</a> has revealed six aspects of hidden energy vulnerability. These are:</p>
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<li><p>underconsumption – households limit or turn off cooling, heating and/or lights to avoid disconnections</p></li>
<li><p>incidental masking – other welfare support, such as rent relief, masks difficulties in paying energy bills</p></li>
<li><p>some households disguise energy poverty by using public facilities such as showers or pooling money for bills between families </p></li>
<li><p>some people conceal their hardship due to pride or fear of legal consequences, such as losing custody of children if food cannot be refrigerated because the power has been cut off</p></li>
<li><p>poor understanding of energy efficiency and the health risks of cold or hot homes adds to the problem</p></li>
<li><p>eligibility criteria for energy assistance programs may exclude some vulnerable households. For example, people with income just above the welfare threshold are missing out on energy concessions. Energy retailer hardship programs also ignore people who have voluntarily disconnected due to financial hardship. </p></li>
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Read more:
<a href="https://theconversation.com/die-of-cold-or-die-of-stress-social-housing-is-frequently-colder-than-global-health-guidelines-164598">'Die of cold or die of stress?': Social housing is frequently colder than global health guidelines</a>
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<h2>5 ways to help these households</h2>
<p>Our studies suggest trusted intermediaries such as people working in health, energy and social services can play a vital role in identifying and supporting such households.</p>
<p>First, energy efficiency and hardship initiatives may be <a href="https://www.rmit.edu.au/about/schools-colleges/property-construction-and-project-management/research/research-centres-and-groups/sustainable-building-innovation-laboratory/projects/care-at-home-system-improvements">integrated into the My Aged Care in-home care system</a>. Energy poverty risk identification, response and referral could be built into the national service’s assessment form. This could leverage existing client screening processes.</p>
<p>The system’s front-line staff could connect at-risk householders with energy counsellors. These counsellors could help people access better energy contracts, concessions, home retrofits and appliance upgrade programs. </p>
<p>A new Commonwealth “energy supplement” could help pay for essential energy-related home modifications. This would help avoid My Aged Care funds being diverted from immediate healthcare needs. </p>
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Read more:
<a href="https://theconversation.com/we-need-a-lemon-law-to-make-all-the-homes-we-buy-and-rent-more-energy-efficient-204369">We need a 'lemon law' to make all the homes we buy and rent more energy-efficient</a>
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<p>Second, general practitioners and other health professionals could help identify energy vulnerability among patients with medical conditions of concern. They could also provide letters of support emphasising renters’ health-based need for air conditioners or heaters.</p>
<p>Third, energy providers could use household energy data to identify those that seem to be under-consuming or are often disconnected. They could also identify those that are not on “best offer” deals. They could be proactive in checking struggling householders’ eligibility for ongoing energy concessions and one-off debt relief grants offered by states and territories.</p>
<p>Energy providers could also make it easier for social housing providers to ensure concessions for tenants renew automatically.</p>
<p>Fourth, local councils could use their data to identify at-risk householders. They might include those with a disability parking permit, discounted council rates or in arrears, on the social housing waiting list, Meals on Wheels clients and social housing tenants. Maternal and child health nurses and home and community care workers making home visits could call attention to cold or hot homes. </p>
<p>Councils could employ in-house energy counsellors to provide assistance and energy literacy training. Council home maintenance teams could develop bulk-buying, insulation and neighbourhood retrofit programs. </p>
<p>Strategies to reduce vulnerability to energy poverty should be part of municipal public health and wellbeing plans. Under these strategies, net-zero-carbon funds set up by states and local councils to reduce emissions could finance targeted housing retrofits.</p>
<p>We also suggest setting up a central helpline to improve access to energy assistance via local referrals. </p>
<p>Fifth, residential energy-efficiency programs could become more person-centric. For example, we already have <a href="https://www.homescorecard.gov.au/">Residential Efficiency Scorecard</a> audits to assess the thermal quality of a home. These audits could also explore whether concessions and better energy deals are available to the household.</p>
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Read more:
<a href="https://theconversation.com/we-all-need-energy-to-survive-here-are-3-ways-to-ensure-australias-crazy-power-prices-leave-no-one-behind-193459">We all need energy to survive. Here are 3 ways to ensure Australia's crazy power prices leave no-one behind</a>
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<h2>Building capacity at all levels</h2>
<p><a href="https://cur.org.au/cms/wp-content/uploads/2021/08/tackling-hidden-energy-final.pdf">Capacity-building strategies</a> are needed at all levels – individual, community and government – to overcome the <a href="https://www.sciencedirect.com/science/article/pii/S2214629623000737">challenges</a> of reducing energy poverty. Current obstacles include the competing priorities of service providers, lack of time and resources, and <a href="https://www.sciencedirect.com/science/article/abs/pii/S2214629622003553">poor co-ordination between siloed</a> programs and services.</p>
<p>Access to essential energy services should be part of state and local governments’ strategic health plans. Housing, energy and health departments could work together to include housing retrofits in preventive health programs. </p>
<p>A comprehensive approach is needed to overcome hidden energy poverty. It must include public education, integrated services and well-funded energy-efficiency programs. Regulatory reforms and ongoing funding are both needed to improve the availability of energy-efficient, affordable homes for tenants.</p>
<p>Our suggested strategies start with improving the skills and knowledge of trusted intermediaries. Doctors, social workers, housing officers, community nurses and volunteers can play a central role. Using these front-line professionals to help identify and act on energy poverty offers a novel, cost-effective and targeted solution.</p><img src="https://counter.theconversation.com/content/204672/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nicola Willand receives or has received funding for research from various organisations, including the Australian Research Council, the Victorian State Government, the Lord Mayor’s Charitable Foundation, the Australian Housing and Urban Research Institute, the Future Fuels Collaborative Research Centre and the Australian National Health and Medical Research Centre. She is affiliated with the Australian Institute of Architects. </span></em></p><p class="fine-print"><em><span>Nooshin Torabi receives or has received funding for research from various organisations, including the Lord Mayor’s Charitable Foundation,</span></em></p><p class="fine-print"><em><span>Ralph Horne receives or has received funding for research from various organisations, including the Australian Research Council, the Victorian State Government, the Lord Mayor’s Charitable Foundation, and the Australian Housing and Urban Research Institute.</span></em></p>Energy poverty puts people’s health and wellbeing at risk, but many vulnerable households go undetected. Trusted intermediaries, such as doctors and community workers, can help solve this problem.Nicola Willand, Senior Lecturer, School of Property, Construction and Project Management, RMIT UniversityNooshin Torabi, Lecturer, Centre for Urban Research, RMIT UniversityRalph Horne, Associate Deputy Vice Chancellor, Research & Innovation, College of Design & Social Context, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1996722023-02-14T19:09:38Z2023-02-14T19:09:38ZFuture home havens: Australians likely to use more energy to stay in and save money<figure><img src="https://images.theconversation.com/files/509923/original/file-20230213-26-g3n76y.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4201%2C2792&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Soaring energy costs are a <a href="https://www.ft.com/content/44d4e730-f713-4932-9295-9e08013fc912">major factor</a> in Australia’s cost-of-living crisis. The conventional wisdom is people will reduce their energy use in response to rising prices – and this may be the case <a href="https://melbourneinstitute.unimelb.edu.au/data/taking-the-pulse-of-the-nation-2022/2023/energy-poverty">for the most vulnerable households</a>. However, our <a href="https://www.monash.edu/digital-energy-futures/releases/digital-energy-futures-scenarios-for-future-living-20302050">research published today</a> suggests rising costs of living are more likely to increase household energy use as people economise by doing more at home. </p>
<p>Our research shows people relate to energy through what it helps them do: feed the family, clean the house and stay healthy, comfortable and entertained. Energy itself is rarely the first consideration. When we understand energy as embedded in everyday life, the simple laws of supply and demand become complicated. </p>
<p>For example, in the face of the cost-of-living crisis, households are investing in home luxuries, our research shows. Rather than spending money on outside activities, it’s going into upgrades and technologies that bring them fun, comfort and safety. </p>
<p>Many are adding air conditioning, air filtration, pools, spas, heated outdoor entertaining areas and bar fridges. They are adding or renovating sheds and outdoor areas to create extra living space. All these changes increase their energy use. </p>
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<p>Drawing on a four-year study of households in Victoria and New South Wales, our research developed four scenarios of everyday life in 2030 and 2050. In two scenarios, the home takes on an even more essential role in everyday life. This has significant implications for both energy forecasts and social inequality.</p>
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Read more:
<a href="https://theconversation.com/older-australians-on-the-tough-choices-they-face-as-energy-costs-set-to-increase-180974">Older Australians on the tough choices they face as energy costs set to increase</a>
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<h2>Why are people doing this?</h2>
<p>Many people reason investing in a home cinema, kitchen appliance, spa or bar is more affordable than going out all the time. Setting up a home office may also be cheaper and more convenient than commuting. </p>
<p>For example, research participants Haruki and Sara (both pseudonyms) were converting a disused shed into a recreation space, complete with a television, video games, refrigerator, heating and cooling, and an electric drum kit. It would be a space where their three children spend their free time, but also serve as an office for Sara to teach music.</p>
<p>COVID-19 lockdowns were a strong impetus for these trends. Many people’s homes became their main site of work and play. They were schools, workplaces and gyms all in one. They also become a haven from the airborne threats outside. </p>
<p>Some might expect these trends to reverse with COVID restrictions lifted and the cost of living soaring. However, our research shows these expectations of the home are continuing and accelerating. </p>
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Read more:
<a href="https://theconversation.com/flexibility-makes-us-happier-with-3-clear-trends-emerging-in-post-pandemic-hybrid-work-180310">Flexibility makes us happier, with 3 clear trends emerging in post-pandemic hybrid work</a>
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<p>As activities like going on holidays, or going out for dinner, become more expensive, investing in the home makes sense. Staying home, even if it involves higher energy costs or buying new appliances, may still mean big savings for the overall household budget.</p>
<p>Our in-depth research provides a nuanced view of how diverse consumers will engage with the energy system beyond merely responding to energy prices. This evidence can help the sector improve forecasting and energy future scenarios. We provide resources to help incorporate aspects of our scenarios into industry modelling. </p>
<h2>4 scenarios of everyday life in 2030 and 2050</h2>
<p>Our team at Monash University’s Emerging Technologies Research Lab developed the <a href="https://www.monash.edu/digital-energy-futures/releases/digital-energy-futures-scenarios-for-future-living-20302050">Scenarios for Future Living</a> report. It presents four scenarios of everyday life – two each in 2030 and 2050. </p>
<p>The scenarios are based on qualitative research with households in Victoria and New South Wales for the <a href="https://www.monash.edu/digital-energy-futures">Digital Energy Futures project</a>, as well as national data from the <a href="https://ecss.energyconsumersaustralia.com.au/behaviour-survey-oct-2022/">Energy Consumer Behaviour Survey</a>. We studied people’s everyday routines, priorities and future visions, including the use of emerging digital and energy technologies. The scenarios also draw on broader demographic, technological, economic and environmental <a href="https://www.monash.edu/__data/assets/pdf_file/0004/2900623/Digital-Energy-Futures-Report.pdf">trends</a> and the latest <a href="https://www.climatechangeinaustralia.gov.au/">climate science</a>.</p>
<p>One 2030 scenario, called “Creature Comforts”, envisions a world where, in response to rising living costs, households invest in consumer electronics and home upgrades. Energy use remains high as households seek to create a comfortable and safe haven. </p>
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<a href="https://images.theconversation.com/files/509909/original/file-20230213-18-rpgcnn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/509909/original/file-20230213-18-rpgcnn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/509909/original/file-20230213-18-rpgcnn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/509909/original/file-20230213-18-rpgcnn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/509909/original/file-20230213-18-rpgcnn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/509909/original/file-20230213-18-rpgcnn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/509909/original/file-20230213-18-rpgcnn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/509909/original/file-20230213-18-rpgcnn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">2030 scenario ‘Creature Comforts’.</span>
<span class="attribution"><span class="source">Illustration by Stephen Elliget (https://epicsteve.com/)/Digital Energy Futures: Scenarios for Future Living Report</span></span>
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<p>The 2050 scenario, “Hunkering Down”, takes this trend further. Homes are optimised to provide a safe, productive and comfortable refuge from extreme weather and climate change. Institutions regularly close due to more frequent extreme weather events. People who can afford housing and technology upgrades stay home, where additional spaces and advanced equipment enable most work, school, exercise and entertainment activities.</p>
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<span class="caption">2050 scenario ‘Hunkering Down’.</span>
<span class="attribution"><span class="source">Illustration by Stephen Elliget (https://epicsteve.com/)/Digital Energy Futures: Scenarios for Future Living Report</span></span>
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<p>In the second 2030 scenario, “Sharing the Load”, households continue to invest, where possible, in solar panels, household batteries and electric vehicles. They prioritise being resourceful and generous with excess power by sharing it with others. </p>
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<span class="caption">2030 scenario ‘Sharing the Load’.</span>
<span class="attribution"><span class="source">Illustration by Stephen Elliget (https://epicsteve.com/)/Digital Energy Futures: Scenarios for Future Living Report</span></span>
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<p>In the second 2050 scenario, “Sunrises and Siestas”, institutions and society adapt to climate change through policy and community initiatives and infrastructures. The home remains important to people’s safety and comfort – but there are more services and technologies that ease the financial pressures on households due to their energy use.</p>
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<a href="https://images.theconversation.com/files/509915/original/file-20230213-18-2j486b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/509915/original/file-20230213-18-2j486b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/509915/original/file-20230213-18-2j486b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/509915/original/file-20230213-18-2j486b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/509915/original/file-20230213-18-2j486b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/509915/original/file-20230213-18-2j486b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/509915/original/file-20230213-18-2j486b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/509915/original/file-20230213-18-2j486b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">2050 scenario ‘Sunrises and Siestas’.</span>
<span class="attribution"><span class="source">Illustration by Stephen Elliget (https://epicsteve.com/)/Digital Energy Futures: Scenarios for Future Living Report</span></span>
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<h2>Energy planning must take account of inequalities</h2>
<p>To bring these scenarios to life, we created narratives for three households: a wealthy and technology-savvy suburban household, a low-income renter, and a retired rural household. Following these households across each scenario reveals the varying impacts on households of different socio-economic and geographic backgrounds. </p>
<p>Wealthy households can afford to insulate themselves from external threats. They manage changing conditions by upgrading their homes. In contrast, people without the means to invest in such upgrades are left exposed to rising costs and extreme weather conditions.</p>
<p>Our research has critical implications for energy policymakers and industry. It underscores the need for a sophisticated, comprehensive approach to considering people’s lives, social change and household investment. Energy planning must account for how various futures can amplify or reduce inequities. </p>
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Read more:
<a href="https://theconversation.com/energy-poverty-in-the-climate-crisis-what-australia-and-the-european-union-can-learn-from-each-other-177316">Energy poverty in the climate crisis: what Australia and the European Union can learn from each other</a>
</strong>
</em>
</p>
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<img src="https://counter.theconversation.com/content/199672/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kari Dahlgren and the Digital Energy Futures Research was funded by the Australian Government through the Australian Research Council’s Linkage Projects funding Scheme (‘Digital Energy Futures’ project number LP180100203) in partnership with Monash University, Ausgrid, AusNet Services and Energy Consumers Australia.</span></em></p><p class="fine-print"><em><span>Yolande Strengers receives funding from the Australian Government through the Australian Research Council’s Linkage Projects funding Scheme (‘Digital Energy Futures’ project number LP180100203) in partnership with Monash University, Ausgrid, AusNet Services and Energy Consumers Australia.</span></em></p>A 4-year study of households has shown how the increasing focus on our homes as sites of work, rest and play can increase energy use despite soaring prices.Kari Dahlgren, Research Fellow Emerging Technologies Research Lab, Monash UniversityYolande Strengers, Professor, Emerging Technologies Research Lab, Monash University, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1910152022-09-21T11:55:16Z2022-09-21T11:55:16ZEnergy crisis: how the EU hopes to tackle high power prices while protecting its cross-border electricity market<figure><img src="https://images.theconversation.com/files/485820/original/file-20220921-12-34jdqw.jpg?ixlib=rb-1.1.0&rect=42%2C73%2C6975%2C4597&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The EU has taken action as power prices have have spiked in line with gas prices this year.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/power-lines-next-euro-notes-stock-2194661177">Viktollio / Shutterstock</a></span></figcaption></figure><p>Europe is getting more of its power from <a href="https://www.eea.europa.eu/ims/share-of-energy-consumption-from">renewable sources</a> every year but, as the current crisis has shown, power markets remain <a href="https://www.consilium.europa.eu/en/infographics/energy-prices-2021/">at the mercy</a> of increasingly volatile gas prices. The EU Commission has recently <a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_22_5489">proposed a plan</a> to relieve the crisis by decoupling electricity and gas prices. But the plan must strike a balance between addressing skyrocketing prices and protecting the cross-border power market the EU has been rolling out across its member states <a href="https://link.springer.com/book/10.1007/978-3-030-90075-5">since the 1990s</a>.</p>
<p>A key feature of liberalised power markets is marginal cost pricing. Gas-fired power is often the most expensive source of electricity, and if this kind of plant is required to balance supply and demand it becomes what’s called the marginal plant, which effectively sets the price for the entire power market. </p>
<p>Pricing at the margin is a feature of all commodity markets, and there is a clear economic logic to this model. Marginal prices send signals to producers who switch between different generation sources as supply and demand needs change. Consumers are provided with clear signals about scarcity, giving them the ability to adjust their consumption in line with changing conditions. In the long run, persistently high prices provide incentives for efficient plants to push the expensive generators out of the market, thus reducing costs for consumers.</p>
<p>More recently, however, this electricity market model has exacerbated the energy crisis for consumers. As gas prices have soared, power prices have followed. German futures – a key European power market benchmark – would normally trade at €40-50 (£35-44) per megawatt hour (MWh), but surpassed €1,000/MWh <a href="https://finance.yahoo.com/news/europe-benchmark-power-price-breaks-082150426.html">for the first time</a> in late August 2022.</p>
<p>As a result, power sources whose costs are not affected by changes in gas prices such as wind, solar and nuclear – so-called inframarginal plants – have all seen their revenues rise significantly due to the higher prices. This situation has been framed as electricity producers <a href="https://www.bbc.co.uk/iplayer/episode/m001bv5w/panorama-the-energy-crisis-whos-cashing-in">extracting unreasonable profits</a>, exploiting vulnerable consumers, and benefiting from the Russian invasion of the Ukraine. Amid the present energy crisis, this is clearly politically unsustainable and so European politicians have had to act.</p>
<p>The Commission has <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2022%3A473%3AFIN&pk_campaign=preparatory&pk_source=EURLEX&pk_medium=TW&pk_keyword=Energy&pk_content=Proposal">released a proposal</a> for tackling mounting energy costs across member states in advance of a meeting of EU energy ministers set for September 30 2022. A key part of this plan aims to address the issue by decoupling gas and power prices.</p>
<h2>Choosing a solution</h2>
<p>The Commission’s preferred approach, which was first proposed by the German government, is to introduce a cap on the revenues that inframarginal plants – those not setting the price – earn from selling power into the market. The proposal would stop these low-cost plants from earning above €180/MWh from the market for the next six months. Excess revenues would be used by governments to support businesses and vulnerable consumers. But this is not the only option on the table.</p>
<p>A separate joint idea from Spain and Portugal targets the marginal plants. A cap is placed on the price that gas-fired plants bid into the market, tagging the price for power offered by these generators to a below-market price for gas. Generators are then compensated for the difference between the level of the cap and the wholesale gas price they face. This temporary measure was <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_22_3550">introduced in the Iberian market</a> in June 2022 for a year to ensure gas generators submit lower bids into the power market, thus depressing prices.</p>
<p>This model suits the specifics of the Spanish market in particular as a relatively high proportion of domestic consumers are on short-term contracts and thus highly exposed to market volatility. A downside of this idea is that it distorts the price signal for consumers and, in the absence of other measures, would lead to increased gas consumption and potentially gas rationing. </p>
<p>The Greek government has also <a href="https://data.consilium.europa.eu/doc/document/ST-11398-2022-INIT/en/pdf">proposed a solution</a>. This involves a more structural reform that splits the electricity market in two, based on the different cost structures of low carbon and fossil fuel sources. Low carbon sources operate “when available” and get remunerated based on long-term costs. Fossil fuel generators, alongside flexible providers such those that store electricity or provide demand response services (encouraging large consumers to adjust usage to match swings in demand), operate “on demand” and bid into a market designed around marginal pricing. Consumers pay a weighted average across the two markets, minimising their exposure to high prices set by gas plants. </p>
<p>There is growing interest in <a href="https://www.ucl.ac.uk/bartlett/sustainable/research-projects/2022/sep/reforming-electricity-markets-low-cost-and-low-carbon-power">“split market” concepts</a> in the energy economics and policy community, but structural reforms cannot address the immediate crisis. It could take years to implement such a change due to the complexities and transition risks involved. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/485823/original/file-20220921-18-uzvh9n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/485823/original/file-20220921-18-uzvh9n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/485823/original/file-20220921-18-uzvh9n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/485823/original/file-20220921-18-uzvh9n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/485823/original/file-20220921-18-uzvh9n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/485823/original/file-20220921-18-uzvh9n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/485823/original/file-20220921-18-uzvh9n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The European Commission needs an energy crisis plan that will satisfy all member states.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/brussels-belgium-11102019-european-union-flags-1614070141">symbiot / Shutterstock</a></span>
</figcaption>
</figure>
<h2>One plan for all</h2>
<p>The Commission favours the German model because it retains the marginal pricing signal, which is an important feature of the cross-border trading system. A measure such as the Iberian model, which interferes with this price setting mechanism, could see capacity on cross-border interconnectors artificially constrained as countries will not wish to see their subsidised power simply exported to neighbouring markets where prices are higher. </p>
<p>The Commission wants to present its solution as pragmatic and practical. But power markets are highly complex, with trading taking place across multiple venues and different timeframes. As such, any intervention is likely to have unintended consequences. For example, it is unclear if a revenue cap would interfere with the operation of crucial balancing markets and threaten security of supply. It will likely damage the investment case for flexible plants that can be ramped up and down to match demand and which do not rely on gas.</p>
<p>There is already <a href="https://www.irishtimes.com/world/europe/2022/09/07/eu-energy-plan-triggers-backlash-from-senior-european-commission-officials/">scepticism</a> about the current revenue cap proposal, with some Commission officials thought to be in favour of the Greek model. There is a risk that the process will become highly politicised, causing countries to go their own way. The European Commission is now under pressure to come up with a solution that can be implemented uniformly by member states so as not to undermine the coherence of a market that it spent almost three decades building.</p><img src="https://counter.theconversation.com/content/191015/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ronan Bolton receives funding from the UK Energy Research Centre. </span></em></p>The European Commission is trying to tackle the energy crisis without dismantling its cross border power market.Ronan Bolton, Reader in Science, Technology and Innovation Studies, The University of EdinburghLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1906162022-09-13T22:18:17Z2022-09-13T22:18:17ZFed likely to stay the course on interest rate hike as inflation ticks up but gas prices ease<figure><img src="https://images.theconversation.com/files/484416/original/file-20220913-20-683yx2.jpg?ixlib=rb-1.1.0&rect=16%2C16%2C5447%2C3620&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Lower gas prices will put downward pressure on inflation.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/gas-prices-are-displayed-at-a-loves-gas-station-on-news-photo/1423171717?adppopup=true">Scott Olson/Getty Images</a></span></figcaption></figure><p>The Federal Reserve received mixed news in the <a href="https://www.bls.gov/news.release/cpi.nr0.htm">latest data on U.S. inflation</a> as it mulls another <a href="https://www.reuters.com/markets/us/fed-seen-delivering-75-basis-point-hike-next-week-with-more-come-2022-09-13/">rate hike</a>.</p>
<p>Consumer prices <a href="https://www.reuters.com/markets/us/monthly-us-consumer-prices-unexpectedly-rise-august-core-inflation-picks-up-2022-09-13/">rose 8.3%</a> in August from a year earlier, data released on Sept. 13, 2022, shows. While this pace is down from the 8.5% annual gain experienced in July, it’s still higher than what <a href="https://www.cnbc.com/2022/09/12/inflation-report-could-show-cpi-moderating-as-gas-and-travel-costs-fall.html">some economists had expected</a>.</p>
<p>The increase comes despite efforts by the U.S. central bank to tamp down the rising cost of living by <a href="https://www.cnbc.com/2022/07/27/fed-decision-july-2022-.html">repeatedly upping baseline interest rates</a> to slow the economy. </p>
<p>It will give the Fed encouragement to opt for a third straight 0.75 percentage point interest rate hike when it meets Sept. 20-21. But despite suggestions that the rate-setters might apply the economy’s brakes more aggressively – by means of a <a href="https://www.reuters.com/markets/us/fed-seen-delivering-75-basis-point-hike-next-week-with-more-come-2022-09-13/">full 1 percentage point rate jump</a> – I believe this is unlikely based on which goods went up in price and which did not in the latest data.</p>
<p>On a month-to-month basis, the categories of <a href="https://www.reuters.com/markets/us/monthly-us-consumer-prices-unexpectedly-rise-august-core-inflation-picks-up-2022-09-13/">food and shelter</a> <a href="https://www.bls.gov/news.release/cpi.t01.htm">saw some of the steepest gains</a>. Food prices increased by 0.8% in August, with eating out jumping at a higher rate than buying groceries. Although this will disappoint consumers hoping to see a drop in food prices, <a href="https://fred.stlouisfed.org/series/CPIUFDSL">August’s data</a> does at least show that the rate of increase is slowing – down from gains of over 1% in recent months.</p>
<p>The same isn’t true for shelter, which rose 0.7% in August, the <a href="https://fred.stlouisfed.org/series/CUSR0000SAH1">biggest one-month increase since 1990</a>. </p>
<p>On their own, these increases would be cause for concern for the Fed – suggesting that attempts to cool inflation through rate hikes haven’t worked. But elsewhere there is one big indicator that overall inflation may soon be heading south: gas prices.</p>
<p>The <a href="https://fred.stlouisfed.org/series/CUUR0000SETB01/">gasoline index dropped by 10.6% in August</a>, one of the biggest one-month declines ever, following a drop of 7.7% in July. </p>
<p>This is likely the result of a number of factors, both global in the shape of an <a href="https://www.reuters.com/business/energy/prices-ease-attention-turns-europes-gas-stores-2022-09-06/">easing in the supply issues</a> that had driven costs up, and national with Americans <a href="https://www.autoweek.com/news/industry-news/a40770031/high-summer-gas-prices-vacation-travel/#:%7E:text=A%20new%20survey%20from%20AAA,habits%20to%20higher%20gas%20prices.">changing their travel habits and driving less</a> to minimize the effects of earlier gas price increases. This change in behavior has translated into lower demand and contributed to an overall decline in prices. </p>
<p>And the thing about gas prices is that any change has a knock-on effect on the prices of other commodities. Lower gas prices should mean <a href="https://www.ers.usda.gov/webdocs/publications/45165/41076_err160-summary.pdf?v=0">the cost of transporting goods</a>, including food, will go down over time. This should eventually bring down grocery bills.</p>
<p>Similarly, lower gas prices will eventually filter into energy costs. Lower energy bills may be a relief to renters and homeowners alike. As to rent inflation, that is <a href="https://www.marketplace.org/2022/07/12/higher-interest-rates-may-not-make-a-dent-in-rising-rents-for-more-than-a-year/">trickier for the Fed to manage</a>. More interest rate hikes should dampen the property market, but making it harder for people to buy homes means the demand for rental units increases – something that would put more upward pressure on rents. All this puts the Fed in a very tricky situation. </p>
<p>Although the latest inflation report wasn’t exactly what monetary policymakers at the Fed would have been looking for, I don’t believe it suggests that its policy of late hasn’t worked.</p>
<p>Overall the consumer price index increased at a slower pace than in recent months. And given that gas prices have declined, the Fed will likely want to wait and see what effect this has on inflation before deciding to get more aggressive with rate increases.</p><img src="https://counter.theconversation.com/content/190616/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Edouard Wemy does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Inflation remained near a 40-year high due to a jump in the cost of food and shelter. But that might not mean the Federal Reserve will get more aggressive when it comes to monetary policy.Edouard Wemy, Assistant Professor of Economics, Clark UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1762322022-02-18T03:37:38Z2022-02-18T03:37:38ZThe pandemic exposes NZ’s supply chain vulnerability – be ready for more inflation in the year ahead<figure><img src="https://images.theconversation.com/files/447176/original/file-20220218-1177-1wesegn.jpg?ixlib=rb-1.1.0&rect=5%2C0%2C3976%2C2622&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">GettyImages</span></span></figcaption></figure><p>You don’t have to be an economist to know New Zealand faces its <a href="https://www.stats.govt.nz/news/annual-inflation-hits-a-three-decade-high-at-5-9-percent">highest annual inflation rate</a> in 30 years – 5.9% as of December 2021. Visit a supermarket or petrol station and the evidence is right before your eyes.</p>
<p>The average price of petrol per litre is now up by 31% compared to last year. In some places, it has already hit NZ$3 a litre. To take just one grocery example, tomatoes doubled in price during the same period, contributing to the highest annual food price inflation since 2011.</p>
<p>These severe price hikes are a direct reflection of the impact of the global pandemic on tradable inflation – that is, goods and services we either import for our own consumption or as components in our own manufacturing and exporting processes.</p>
<p>Since mid-2021, annual tradable inflation has been outpacing non-tradable inflation (the rising price of goods and services we produce and consume domestically) – 6.9% versus 5.3% at December 2021.</p>
<p>While tradable inflation accounts for about 40% of New Zealand’s overall inflation, the pace at which it’s growing means external sources are increasingly fuelling inflationary pressure.</p>
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<h2>Pandemic pressures</h2>
<p>Much of this can be sourced back to the effects of the pandemic on global supply lines. Three key factors are driving the pressures:</p>
<ol>
<li><p>Costs of raw materials and other inputs are rising at each stage of the supply chain, with factories closing and reopening due to changing restrictions. The semiconductor industry, for example, has been facing a chip shortage since 2021.</p></li>
<li><p>Logistics and transport costs are rising due to massive disruptions at the distribution end of the supply chain. Reduced airline capacity and rerouting of cargo, coupled with lockdowns and isolation requirements, have led to delays in unloading cargo at ports and slower turnaround times for ships. Freight company Mainfreight, for example, expects delays of <a href="https://www.nzherald.co.nz/business/mainfreight-warns-auckland-should-brace-for-long-freight-delivery-delays-due-to-port-issues/QSFFOLL3LU4AOKRUCCGE6OOXZ4/">20-30 days</a> above normal shipping times for Auckland.</p></li>
<li><p>Energy costs are rising, partly due to recovery in global demand in 2021, combined with supply shortages and cartel-controlled production.</p></li>
</ol>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/energy-prices-how-covid-helped-them-to-surge-and-why-they-wont-go-down-any-time-soon-175679">Energy prices: how COVID helped them to surge – and why they won't go down any time soon</a>
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<p>These combine to cause disruption at each stage of supply chain – production, transportation and distribution – forcing New Zealand to “import” more inflation on top of what is being generated from within its own economy. Vehicles, fuel, clothing, processed foods and manufacturing materials have all been affected.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1492748138410434563"}"></div></p>
<h2>Supply chain vulnerability</h2>
<p>The rising cost of house construction provides an illustrative example. Prices go up when, say, imported iron girders cost more to produce in their country of origin, in turn caused by costlier imports of iron and steel.</p>
<p>On top of this there can be delays in shipping the materials due to port closures or workforces affected by the pandemic.</p>
<p>Similarly, the scarcity caused by a worldwide semiconductor shortage means higher costs of production for electronic products and new vehicles, pushing up retail prices for imports.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/inflation-is-raising-prices-and-reducing-real-wages-what-should-be-done-to-support-nzs-low-income-households-175915">Inflation is raising prices and reducing real wages – what should be done to support NZ’s low-income households?</a>
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<p>Above all, rising energy costs are a financial body blow to the transport and logistics sector – the backbone of the local economy. The geopolitical tensions over Ukraine and Russia – both major oil and gas producers – simply add to the risk of spiking imported energy costs.</p>
<p>The pandemic has exposed New Zealand’s ever-present vulnerability to global supply chain disruptions. If the emergence of new COVID-19 variants affects New Zealand’s major trading partners (China, Australia, US, EU and Japan) imported inflation will remain a problem throughout 2022.</p>
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<h2>No quick fix</h2>
<p>The unpredictable impacts of the pandemic on supply chain-led tradable inflation create a tough balancing act for policymakers because the causes are out of their direct control.</p>
<p>The Reserve Bank’s use of interest rates and monetary policy to maintain short-term price stability has worked well when domestic factors drove inflation. It’s a lot trickier when external supply shocks become the key drivers, and inflation predictions are clouded by global uncertainties.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-to-prevent-disruptions-in-food-supply-chains-after-covid-19-144993">How to prevent disruptions in food supply chains after COVID-19</a>
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<p>Some relief could be provided by the government reducing GST and fuel taxes, but this is not a quick fix. In the medium to longer term, New Zealand needs to diversify risk and bring some supply chains back within its own borders.</p>
<p>The government could take a cue from the trilateral supply chain resilience initiative (<a href="https://thediplomat.com/2020/09/the-resilient-supply-chain-initiative-reshaping-economics-through-geopolitics/">SCRI</a>) launched last year by two of New Zealand’s main trading partners, Australia and Japan, and the fastest-growing emerging global market, India. Its aim is to identify key sectors vulnerable to supply chain shocks and invest in their resilience to future uncertainties.</p>
<p>For now, however, New Zealand can count on an unpredictable road ahead, and should be ready for the possibility of even higher inflation than the year before.</p><img src="https://counter.theconversation.com/content/176232/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The author is Senior Lecturer, School of Economics, Faculty of Business Economics and Law, AUT. The views expressed here are personal. </span></em></p><p class="fine-print"><em><span>The author is Lecturer, School of Economics, Faculty of Business Economics and Law, AUT. The views expressed here are personal.</span></em></p>Disruption at each stage of supply chain – production, transportation and distribution – is forcing New Zealand to ‘import’ more inflation. There will be no quick fix in 2022.Rahul Sen, Senior Lecturer, School of Economics, Auckland University of TechnologySadhana Srivastava, Lecturer in Economics, Auckland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1748532022-01-13T13:03:26Z2022-01-13T13:03:26ZInflation inequality: Poorest Americans are hit hardest by soaring prices on necessities<figure><img src="https://images.theconversation.com/files/440554/original/file-20220112-21-1y7fro3.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C2995%2C2002&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Not all baskets are created equally.
</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/janelle-myers-of-riverside-fills-her-arms-with-groceries-news-photo/517289220?adppopup=true">Gina Ferazzi/Los Angeles Times via Getty Images</a></span></figcaption></figure><p>The <a href="https://news.yahoo.com/us-inflation-rate-hits-near-135020097.html">fastest rate of inflation in 40 years</a> is hurting families across the U.S. who are seeing ever-higher prices for everything from <a href="https://www.washingtonpost.com/business/2021/09/15/food-inflation-faq/">meat and potatoes</a> to <a href="https://www.cnbc.com/2021/12/28/us-home-prices-surge-18point4percent-in-october.html">housing</a> and <a href="https://www.foxbusiness.com/economy/gas-prices-push-higher-as-oil-remains-stubbornly-strong">gasoline</a>. </p>
<p>But behind the <a href="https://apnews.com/article/consumer-prices-inflation-c1bfd93ed1719cf0135420f4fd0270f9?utm_campaign=SocialFlow&utm_source=Twitter&utm_medium=AP">headline number</a> that’s been widely reported is something that often gets overlooked: Inflation affects different households in different ways – and sometimes hurts those with the least, the most. </p>
<p>Inflation, as calculated by the <a href="https://www.bls.gov/cpi/">Bureau of Labor Statistics</a>, is designed to track the price increases in a typical U.S. household’s basket of goods. The problem is spending bundles differ across households. For example, a family in the lowest 20% of income typically spends around 15% of their budget on groceries – this is nearly <a href="https://jakeorchard.github.io/Written-Materials/Orchard_JMP_cyclical_ds.pdf">60% more than households in the top 20% of the income distribution</a>, according to my calculations.</p>
<h2>The widening inflation gap</h2>
<p>On Jan. 12, 2022, the BLS released figures showing that inflation <a href="https://www.bls.gov/news.release/cpi.nr0.htm">jumped by 7%</a> in December from a year earlier – the fastest pace since 1982. To see how this varied across households, I used the bureau’s own price data and factored in the typical spending habits of different income groups. </p>
<p>I calculate that inflation is running at 7.2% for the lowest income households – higher than for any other group. For the highest income families, the rate of change was 6.6%.</p>
<p>The difference between the two income groups steadily increased throughout 2021, starting the year at just 0.16 percentage point but ending at 0.6 percentage point – near the highest it has been since 2010.</p>
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<p>The reason for this widening rich-poor inflation gap, known by economists as <a href="https://www.annualreviews.org/doi/abs/10.1146/annurev-economics-091520-082042">inflation inequality</a>, comes down to the typical spending habits of people in each income group.</p>
<p>In times of economic uncertainty and recession, most households tend to hold back on buying <a href="https://jakeorchard.github.io/Written-Materials/Orchard_JMP_cyclical_ds.pdf">luxury goods</a>. But by and large, people can’t cut down on necessities such as groceries and heating – although wealthier consumers are better placed to stock up on these necessities when prices are cheap.</p>
<p>This shift of spending away from luxury items like vacations and new cars, and toward necessities, pushes inflation up for poorer families more than richer ones. This is because lower-income households dedicate a higher percentage of their income on <a href="https://jakeorchard.github.io/Written-Materials/Orchard_JMP_cyclical_ds.pdf">necessities</a>.</p>
<p>My data shows that this inflation gap tends to be widest in times of recession or in the early stages of economic recovery. In the aftermath of the <a href="https://www.federalreservehistory.org/essays/great-recession-of-200709">Great Recession</a> of 2008-2009, the gap in inflation rates between the lowest and highest income groups was close to 1 percentage point – higher than it is now.</p>
<p>By contrast, in times of economic growth – for example, from 2012 to 2018 – the gap narrows. It even inverted at one point in 2016; the inflation rate for poorer Americans was almost a half-percentage point lower than that of richer Americans.</p>
<p>The main driver of the growing gap in 2021 was the increases in groceries and gas prices. This has made inflation run hotter for all households. But given the greater proportion of household income that poorer families dedicate to food and energy costs, it has affected them more. </p>
<p>Take out gas and grocery prices, then the inflation gap is reduced significantly.</p>
<p>Going forward, I expect the inflation gap will follow a similar pattern as we saw after the Great Recession – as economic recovery turns into continued expansion, inflation will be lower for low-income households than high-income households. </p>
<p>[<em>More than 140,000 readers get one of The Conversation’s informative newsletters.</em> <a href="https://memberservices.theconversation.com/newsletters/?source=inline-140K">Join the list today</a>.]</p><img src="https://counter.theconversation.com/content/174853/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jacob Orchard received funding from the Washington Center for Equitable Growth in 2019. </span></em></p>The rising cost of groceries and gas is fueling the fastest increase in consumer prices in 40 years and widening the inflation gap between the rich and poor.Jacob Orchard, Doctoral Candidate in Economics, University of California, San DiegoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1451682020-08-27T06:40:59Z2020-08-27T06:40:59ZSure, no-one likes a blackout. But keeping the lights on is about to get expensive<figure><img src="https://images.theconversation.com/files/355028/original/file-20200827-14-1n3ndh1.jpg?ixlib=rb-1.1.0&rect=14%2C7%2C4905%2C3245&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>A new official report shows blackouts in eastern Australia’s grid this summer are unlikely. While that’s welcome news, it casts doubt on the wisdom of a recent government decision to tighten electricity reliability standards – a decision that will cost consumers.</p>
<p>The <a href="https://aemo.com.au/newsroom/media-release/2020-esoo">report</a> from the Australian Energy Market Operator, published this morning, is known as the Electricity Statement of Opportunities. It says no “unserved energy” is expected this summer and tight reliability standards will be met for the foreseeable future. This is largely due to increased installations of renewable generation, the return to service of a few coal plants after maintenance and lower electricity demand due to COVID-19.</p>
<p>For the first time, reliability was assessed against new standards substantially tighter than the last. State and federal energy ministers <a href="http://www.coagenergycouncil.gov.au/publications/23rd-energy-council-meeting-communiqu%C3%A9">quietly agreed</a> to tighten the standard earlier this year, and just last week <a href="http://www.coagenergycouncil.gov.au/reliability-and-security-measures/interim-reliability-measures">the change was finalised</a>. </p>
<p>While electricity supply is expected to be fine this summer, beyond that reliability will deteriorate, particularly for New South Wales, as old power plants close. That’s when the new standard will bite: a grid without power cuts is <a href="https://theconversation.com/amid-blackout-scare-stories-remember-that-a-grid-without-power-cuts-is-impossible-and-expensive-102115">impossible and expensive</a>.</p>
<figure class="align-center ">
<img alt="Adelaide during blackout in 2016." src="https://images.theconversation.com/files/355029/original/file-20200827-16-1jsc1q3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/355029/original/file-20200827-16-1jsc1q3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/355029/original/file-20200827-16-1jsc1q3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/355029/original/file-20200827-16-1jsc1q3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/355029/original/file-20200827-16-1jsc1q3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/355029/original/file-20200827-16-1jsc1q3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/355029/original/file-20200827-16-1jsc1q3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Adelaide during blackout in 2016. Eliminating outages entirely is expensive.</span>
<span class="attribution"><span class="source">Daniel Mariuz/AAP</span></span>
</figcaption>
</figure>
<h2>What is electricity reliability?</h2>
<p>In electricity systems, reliability is a measure of the ability of electricity generation infrastructure to meet consumer demand. </p>
<p>When users require more energy than generators can supply, this can cause outages or blackouts. However, this is a rare cause of blackouts: <a href="https://www.aemc.gov.au/markets-reviews-advice/reliability-frameworks-review">more than 96%</a> are caused by faults or other incidents on the network, such as trees falling on power lines. </p>
<p>In the National Electricity Market, which covers the eastern states, the term “unserved energy” is used to measure the ability (or not) of the power system to meet consumer demand. Unserved energy occurs through “load shedding”, when electricity to large groups of customers is cut to keep the overall system running. </p>
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<p>The former reliability standard required expected unserved energy be no more than 0.002% in a given year. In other words, the system was expected to deliver 99.998% of the electricity consumers demanded. </p>
<p>The new interim reliability standard reduces this to 0.0006%, out to 2023 when it will be reviewed. The tighter standard will cost energy companies money, which will be recouped from customers.</p>
<figure class="align-center ">
<img alt="A $50 note sticking out of a power socket." src="https://images.theconversation.com/files/355030/original/file-20200827-24-e2nuc6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/355030/original/file-20200827-24-e2nuc6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/355030/original/file-20200827-24-e2nuc6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/355030/original/file-20200827-24-e2nuc6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/355030/original/file-20200827-24-e2nuc6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/355030/original/file-20200827-24-e2nuc6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/355030/original/file-20200827-24-e2nuc6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The cost of tighter reliability standards will be passed onto consumers.</span>
<span class="attribution"><span class="source">Julian Smith/AAP</span></span>
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</figure>
<h2>Why has the reliability standard changed?</h2>
<p>It’s important to understand the extent to which consumers care about electricity reliability over affordability.</p>
<p>Last December, the Australian Energy Regulator published a review of reliability “<a href="https://www.aer.gov.au/networks-pipelines/guidelines-schemes-models-reviews/values-of-customer-reliability">values</a>”. It found in general, residential electricity customers valued reliability slightly less in 2019 than in 2014, with the exception of customers in suburban Adelaide (presumably due to the <a href="https://www.theguardian.com/australia-news/2016/sep/28/south-australia-braces-for-storm-that-could-be-most-severe-in-50-years">statewide blackouts</a> there in 2016). </p>
<p>So why has the reliability standard been tightened? Blackouts and outages are politically sensitive issues. Politicians, and the market operator for that matter, have strong incentives to ensure reliability, and yet <a href="https://link.springer.com/chapter/10.1007/978-94-015-7957-5_16">don’t have to pay</a> to achieve it.</p>
<p>For this reason, the reliability standard is supposed to be reviewed and set by an independent <a href="https://www.aemc.gov.au/about-us/reliability-panel">reliability panel </a>. The reliability panel has not recommended an increase to the standard. </p>
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<p>Tightening of reliability standards is not a theoretical problem. In particular, we’ve seen the repercussions in the network sector – otherwise known as the “poles and wires”. Following network outages in NSW and Queensland in <a href="https://reneweconomy.com.au/this-is-no-time-for-energy-ministers-to-panic-over-reliability-standards-37320/">early 2004</a>, both states rushed in tighter standards for network reliability. This contributed to multibillion-dollar network infrastructure upgrades which consumers have been paying off for years. </p>
<p>Tightening of the reliability standard will similarly increase the costs of generation. From next year, retailers may be <a href="https://www.energy.gov.au/publications/retailer-reliability-obligation-factsheet">required</a> to enter contracts with electricity generators to meet their share of expected peak demand. Or the market operator may <a href="https://aemo.com.au/en/energy-systems/electricity/emergency-management/reliability-and-emergency-reserve-trader-rert">secure more electricity capacity</a> when needed – such as by asking large energy users to power down, or bringing diesel or gas generators online.</p>
<p>In either case, the costs are passed on to consumers. </p>
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<img alt="Workers perform maintenance on power lines." src="https://images.theconversation.com/files/355032/original/file-20200827-20-lyejm5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/355032/original/file-20200827-20-lyejm5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/355032/original/file-20200827-20-lyejm5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/355032/original/file-20200827-20-lyejm5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/355032/original/file-20200827-20-lyejm5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/355032/original/file-20200827-20-lyejm5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/355032/original/file-20200827-20-lyejm5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Consumers were still paying for huge infrastructure upgrades to poles and wires in NSW.</span>
<span class="attribution"><span class="source">Jason Lee/Reuters</span></span>
</figcaption>
</figure>
<h2>Silver lining?</h2>
<p>There may be a thin silver lining. The promise of “demand response” measures – when electricity consumers reduce their electricity demand to help supply and demand match during extreme peaks – could lower the cost of meeting the new reliability standard. This is because with less energy being used, fewer more expensive measures may be needed to maintain supply. </p>
<p>The government-appointed Energy Security Board <a href="https://prod-energycouncil.energy.slicedtech.com.au/sites/prod.energycouncil/files/ESB%20Decision%20Paper%20%E2%80%93%20Interim%20Reliability%20Measure.pdf">has said</a> tightening the standard may in fact encourage more demand response measures. Supporting demand response is an admirable goal, but tightening the reliability standard is an odd way to go about it. </p>
<p>While the outlook for reliability this summer looks good, the changes in reliability standard ring alarm bells for the future. Consumers are generally happy with their reliability, and the vast majority of outages are not the result of demand outstripping supply. The changes don’t appear well justified or targeted, and they will come at a cost. Things are going to get expensive. </p>
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<img src="https://counter.theconversation.com/content/145168/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dylan McConnell has received funding from the AEMC's Consumer Advocacy Panel and Energy Consumers Australia. He has also previous been funded by the Department of Foreign Affairs and Trade.
</span></em></p><p class="fine-print"><em><span>Anne Kallies does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An official report on Thursday said blackouts are not expected this summer. But consumers will still have to pay through the nose to make the system more reliable.Dylan McConnell, Research Fellow at the Australian German Climate and Energy College, The University of MelbourneAnne Kallies, Senior Lecturer, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1404162020-07-30T12:19:37Z2020-07-30T12:19:37ZEnergy is a basic need, and many Americans are struggling to afford it in the COVID-19 recession<figure><img src="https://images.theconversation.com/files/348467/original/file-20200720-37-sjhky8.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5375%2C3511&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The COVID-19 recession has made it harder for many Americans to pay their energy bills. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/low-voltage-power-lines-connecting-residential-royalty-free-image/644561170?adppopup=true">Getty Images</a></span></figcaption></figure><p>Several months into the COVID-19 pandemic crisis, lower-income families are struggling to pay their energy bills. That’s a big concern during extreme events like <a href="https://www.noaa.gov/news/stay-hydrated-it-s-going-to-be-long-hot-july-for-much-of-us">summer heat waves</a>, which can be deadly – especially for <a href="https://theconversation.com/heat-stroke-a-doctor-offers-tips-to-stay-safe-as-temperatures-soar-120626">elderly people</a>, young children, <a href="https://theconversation.com/heat-waves-threaten-city-dwellers-especially-minorities-and-the-poor-81738">people of color and the poor</a>.</p>
<p>We ran a <a href="https://oneill.indiana.edu/doc/research/energy-insecurity-survey-june-2020.pdf?_ga=2.256794316.617866999.1592234109-1468293896.1585660132">nationally representative survey</a> in May 2020 of U.S. low-income households to measure energy insecurity. We found that 13% of respondents had been unable to pay an energy bill during the prior month, 9% had received an electricity utility shutoff notice and 4% had had their electric utility service disconnected. </p>
<p>More than half of the states <a href="https://www.naruc.org/compilation-of-covid-19-news-resources/state-response-tracker/">temporarily barred utilities from disconnecting customers</a> who were unable to pay their bills due to financial hardship in the early months of the economic downturn. Still, extrapolating our findings to the national level suggests that approximately 800,000 low-income households may have recently had their electricity disconnected. </p>
<p>And the problem could get worse as the economy continues to struggle. As scholars who study <a href="https://scholar.google.com/citations?user=62WhEF0AAAAJ&hl=en">energy policy</a>, <a href="https://scholar.google.com/citations?user=SnSvL-sAAAAJ&hl=en">the environment</a> and <a href="https://energyjustice.indiana.edu/">energy justice</a>, we believe energy assistance should be a central part of ongoing state and federal relief efforts.</p>
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<h2>Energy insecurity affects well being</h2>
<p>Energy insecurity is already a <a href="https://doi.org/10.1038/s41560-020-0582-0">widespread problem</a> in the U.S. It disproportionately affects those at or below the poverty line, Black and Hispanic households, families with young children, people with disabilities and those who use electronic medical devices. Our survey is the first to try to quantify it among low-income households.</p>
<p>When families cannot afford to keep their lights on, or heat or cool their homes to comfortable temperatures, they <a href="https://doi.org/10.1016/j.socscimed.2016.08.029">suffer physically and mentally</a>. Risks include exposure to dampness, mold and humidity; dangerous practices, such as using stoves for space heating; and feelings of chronic stress, anxiety and depression.</p>
<p>Before 2020, energy insecurity was expected to worsen due to rising energy costs, coupled with more frequent <a href="https://www.c2es.org/content/heat-waves-and-climate-change/">heat waves</a> and cold spells due to climate change. Now the COVID-19 pandemic presents an additional, <a href="https://www.aceee.org/blog-post/2020/05/perfect-storm-covid-19-cuts-incomes-and-hikes-home-energy-bills">unprecedented challenge</a>. </p>
<p><a href="https://www.brookings.edu/blog/up-front/2020/04/15/the-unemployment-impacts-of-covid-19-lessons-from-the-great-recession/">Unemployment</a> remains high. Power shutoff moratoriums in many states are <a href="https://www.npr.org/2020/07/28/892995058/tidal-wave-of-power-shut-offs-looms-as-nation-grapples-with-heat">reaching their expiration dates</a>. Many households will struggle to cover monthly expenses such as energy bills, along with necessities such as rent and groceries. </p>
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<h2>Job losses, energy challenges</h2>
<p>We surveyed a nationally representative sample of households at or below 200% of the federal poverty line, which is about US$51,500 for a family of four. <a href="https://today.yougov.com/about/">YouGov</a>, a private polling and market research firm, conducted the survey online from April 30, 2020 through May 25, 2020 for our Indiana University research team.</p>
<p>The survey was taken by 2,381 respondents. It included questions about energy expenses, household energy behavior and activities since the onset of the COVID-19 pandemic.</p>
<p>About a quarter of survey respondents had lost jobs, had their hours reduced or been placed on furlough without pay since the start of the pandemic. Of those with a change in employment status, approximately 15% lost their health insurance, and an additional 10% experienced a reduction in benefits. Before the pandemic, 22% had already lacked health insurance.</p>
<p>[<em>You need to understand the coronavirus pandemic, and we can help.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=coronavirus-help">Read The Conversation’s newsletter</a>.]</p>
<p>Households facing such hardships must choose between covering energy costs and other expenses. Approximately 22% of respondents reported that in the previous month they had reduced or put off expenses for basic needs like medicine or food in order to pay their energy bills.</p>
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<h2>Energy insecurity has increased</h2>
<p>As people spend more time at home through the hot summer months, many are using more energy for essential services. They are running <a href="https://www.latimes.com/environment/newsletter/2020-05-28/climate-change-covid-19-heat-waves-boiling-point-newsletter-boiling-point">air conditioners</a>, refrigerators, cooking appliances and electronic and medical devices. And, as the school year begins, students attending school from home will need to power computers and other devices.</p>
<p>The combination of rising energy use and falling incomes is likely to increase low-income households’ energy burdens – the proportion of their incomes they spend on energy. We expect that this trend will move a whole new population of households into energy insecurity. Some may try to cope without important energy uses, such as air conditioning, fans and refrigeration.</p>
<p><a href="https://doi.org/10.1038/s41560-020-0620-y">Federal and state governments can help</a>. For example, Congress could pass legislation imposing a universal moratorium on utility shutoffs. And state regulators could prevent utilities from charging late and reconnection fees while the pandemic persists and people remain unemployed. Following a moratorium, regulators could also consider debt forgiveness as households recover. </p>
<p>Governments and organizations – public, private and nonprofit – can also offer bill assistance to vulnerable households and financial assistance to small businesses. One way would be to expand the federal <a href="https://www.acf.hhs.gov/ocs/programs/liheap">Low-Income Home Energy Assistance Program</a>, or LIHEAP, or other financial assistance programs, such as <a href="https://www.marketplace.org/2020/07/07/answers-to-your-questions-about-unemployment-benefits-and-covid-19/">unemployment benefits</a> and the <a href="https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program">Paycheck Protection Program</a>. The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, provided <a href="https://www.acf.hhs.gov/ocs/resource/liheap-dcl-2020-10-cares-act-supplemental-funding-release-ffy20#:%7E:text=This%20act%20provided%20%24900%20million,grantees%20under%20the%20CARES%20Act.">$900 million in supplemental funding for LIHEAP</a>, but this only scratches the surface of what is needed.</p>
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<figcaption><span class="caption">Some cities and states are working with utilities to help customers struggling to pay their bills.</span></figcaption>
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<p>Governments should also consider increasing funding for the Department of Energy’s <a href="https://www.energy.gov/eere/wap/weatherization-assistance-program">Weatherization Assistance Program</a>. This program represents a longer-term solution that can help low-income households save money on energy bills by repairing and upgrading key components like furnaces and ducts, and ensuring that houses are well insulated, sealed and ventilated.</p>
<p>So far in the pandemic, federal and state governments have focused on Americans’ immediate material needs. But millions of households are currently struggling to cover their energy costs, and living without energy could be a matter of life or death. Governments have the ability to help prevent this kind of secondary disaster, and more generally to recognize that energy is a basic and essential human need. </p>
<p><em>Michelle Graff and Trevor Memmott, doctoral students at the O'Neill School at Indiana University, are primary contributors to this ongoing research effort and authors of publications associated with this work.</em></p><img src="https://counter.theconversation.com/content/140416/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sanya Carley receives funding from the National Science Foundation, the Alfred P. Sloan Foundation, Indiana University's Environmental Resilience Institute and the Office of the Vice President of Research.</span></em></p><p class="fine-print"><em><span>David Konisky receives funding for this project from the National Science Foundation, the Alfred P. Sloan Foundation, Indiana University's Environmental Resilience Institute, and Indiana University's Office of the Vice President of Research. </span></em></p>Many Americans had trouble paying their energy bills before COVID-19, and the current recession is making the problem worse.Sanya Carley, Professor of Public and Environmental Affairs, Indiana UniversityDavid Konisky, Professor of Public and Environmental Affairs, Indiana UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1188202019-06-23T19:59:16Z2019-06-23T19:59:16ZAustralia’s still building 4 in every 5 new houses to no more than the minimum energy standard<p>New housing in Australia must meet minimum energy performance requirements. We wondered how many buildings exceeded the minimum standard. What our analysis found is that four in five new houses are being built to the minimum standard and a negligible proportion to an optimal performance standard.</p>
<p>Before these standards were introduced the average performance of housing was found to be <a href="https://www.sustainability.vic.gov.au/About-us/Research/Household-retrofit-trials">around 1.5 stars</a>. The current minimum across most of Australia is six stars under the <a href="http://nathers.gov.au/governance/national-construction-code-and-state-and-territory-regulations">Nationwide House Energy Rating Scheme (NatHERS)</a>. </p>
<p>This six-star minimum falls short of what is optimal in terms of <a href="https://theconversation.com/sustainable-housings-expensive-right-not-when-you-look-at-the-whole-equation-60056">environmental, economic</a> and <a href="https://theconversation.com/low-energy-homes-dont-just-save-money-they-improve-lives-81084">social</a> outcomes. It’s also below the minimum set by many <a href="https://ec.europa.eu/energy/en/topics/energy-efficiency/energy-performance-of-buildings">other countries</a>.</p>
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Read more:
<a href="https://theconversation.com/low-energy-homes-dont-just-save-money-they-improve-lives-81084">Low-energy homes don't just save money, they improve lives</a>
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<p><a href="https://theconversation.com/to-cut-emissions-the-housing-sector-has-to-pull-its-weight-13262">There have been calls</a> for these minimum standards to be raised. However, many policymakers and building industry stakeholders believe the market will lift performance beyond minimum standards and so there is no need to raise these.</p>
<h2>What did the data show?</h2>
<p><a href="https://doi.org/10.1016/j.enpol.2019.06.017">We wanted to understand</a> what was happening in the market to see if consumers or regulation were driving the energy performance of new housing. To do this we explored the <a href="https://ahd.csiro.au/">NatHERS data set of building approvals</a> for new Class 1 housing (detached and row houses) in Australia from May 2016 (when all data sets were integrated by CSIRO and Sustainability Victoria) to December 2018.</p>
<p><a href="https://doi.org/10.1016/j.enpol.2019.06.017">Our analysis focuses</a> on new housing in Victoria, South Australia, Western Australia, Tasmania and the ACT, all of which apply the minimum six-star NatHERS requirement. The other states have local variations to the standard, while New South Wales uses the BASIX index to determine the environmental impact of housing. </p>
<p>The chart below shows the performance for 187,320 house ratings. Almost 82% just met the minimum standard (6.0-6.4 star). Another 16% performed just above the minimum standard (6.5-6.9 star). </p>
<p>Only 1.5% were designed to perform at the economically optimal 7.5 stars and beyond. By this we mean a balance between the extra upfront building costs and the savings and benefits from lifetime building performance.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/279936/original/file-20190618-118497-1w4s4b6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/279936/original/file-20190618-118497-1w4s4b6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/279936/original/file-20190618-118497-1w4s4b6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=262&fit=crop&dpr=1 600w, https://images.theconversation.com/files/279936/original/file-20190618-118497-1w4s4b6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=262&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/279936/original/file-20190618-118497-1w4s4b6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=262&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/279936/original/file-20190618-118497-1w4s4b6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=329&fit=crop&dpr=1 754w, https://images.theconversation.com/files/279936/original/file-20190618-118497-1w4s4b6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=329&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/279936/original/file-20190618-118497-1w4s4b6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=329&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">NatHERS star ratings across total data set for new housing approvals, May 2016–December 2018.</span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The average rating is 6.2 stars across the states. This has not changed since 2016. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/279937/original/file-20190618-118535-1e61syj.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/279937/original/file-20190618-118535-1e61syj.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/279937/original/file-20190618-118535-1e61syj.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=259&fit=crop&dpr=1 600w, https://images.theconversation.com/files/279937/original/file-20190618-118535-1e61syj.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=259&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/279937/original/file-20190618-118535-1e61syj.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=259&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/279937/original/file-20190618-118535-1e61syj.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=326&fit=crop&dpr=1 754w, https://images.theconversation.com/files/279937/original/file-20190618-118535-1e61syj.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=326&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/279937/original/file-20190618-118535-1e61syj.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=326&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Average NatHERS star rating for each state, 2016-18.</span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The data analysis shows that, while most housing is built to the minimum standard, the cooler temperate regions (Tasmania, ACT) have more houses above 7.0 stars compared with the warm temperate states.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/279938/original/file-20190618-118526-zt83ab.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/279938/original/file-20190618-118526-zt83ab.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/279938/original/file-20190618-118526-zt83ab.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=342&fit=crop&dpr=1 600w, https://images.theconversation.com/files/279938/original/file-20190618-118526-zt83ab.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=342&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/279938/original/file-20190618-118526-zt83ab.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=342&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/279938/original/file-20190618-118526-zt83ab.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=430&fit=crop&dpr=1 754w, https://images.theconversation.com/files/279938/original/file-20190618-118526-zt83ab.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=430&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/279938/original/file-20190618-118526-zt83ab.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=430&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">NatHERS data spread by state.</span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The ACT increased average performance each year from 6.5 stars in 2016 to 6.9 stars in 2018. This was not seen in any other state or territory. </p>
<p>The ACT is the only region with <a href="https://theconversation.com/energy-star-ratings-for-homes-good-idea-but-it-needs-some-real-estate-flair-54056">mandatory disclosure of the energy rating</a> on sale or lease of property. The market can thus value the relative energy efficiency of buildings. Providing this otherwise invisible information may have empowered consumers to demand slightly better performance.</p>
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Read more:
<a href="https://theconversation.com/energy-star-ratings-for-homes-good-idea-but-it-needs-some-real-estate-flair-54056">Energy star ratings for homes? Good idea, but it needs some real estate flair</a>
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<h2>We are paying for accepting a lower standard</h2>
<p>The evidence suggests consumers are not acting rationally or making decisions to maximise their financial well-being. Rather, they just accept the minimum performance the building sector delivers. </p>
<p>Higher energy efficiency or even environmental sustainability in housing provides not only <a href="https://theconversation.com/sustainable-housings-expensive-right-not-when-you-look-at-the-whole-equation-60056">significant benefits to the individual but also to society</a>. And these improvements can be delivered for little additional cost. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/sustainable-housings-expensive-right-not-when-you-look-at-the-whole-equation-60056">Sustainable housing's expensive, right? Not when you look at the whole equation</a>
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<p>The fact that these improvements aren’t being made suggests there are significant barriers to the market operating efficiently. This is despite increasing awareness among consumers and in the housing industry about the <a href="https://theconversation.com/as-power-prices-soar-we-need-a-concerted-effort-to-tackle-energy-poverty-98764">rising cost of energy</a>.</p>
<p>Eight years after the introduction of the six-star NatHERS minimum requirement for new housing in Australia, the results show the market is delivering four out of five houses that just meet this requirement. With only 1.5% designed to 7.5 stars or beyond, regulation rather than the economically optimal energy rating is clearly driving the energy performance of Australian homes. </p>
<p>Increasing the minimum performance standard is the most effective way to improve the energy outcomes.</p>
<p>The next opportunity for increasing the minimum energy requirement will be 2022. Australian housing standards were already about <a href="https://authors.elsevier.com/a/1ZDHH14YGgbVJ6">2.0 NatHERS stars behind comparable developed countries in 2008</a>. If mandatory energy ratings aren’t increased, Australia will fall further behind international best practice. </p>
<p>If we continue to create a legacy of homes with relatively poor energy performance, making the transition to a low-energy and low-carbon economy is likely to get progressively more challenging and expensive. <a href="https://www.climateworksaustralia.org/publication/report/bottom-line-household-impacts-delaying-improved-energy-requirements-building-code">Recent research has calculated</a> that a delay in increasing minimum performance requirements from 2019 to 2022 will result in an estimated A$1.1 billion (to 2050) in avoidable household energy bills. That’s an extra 3 million tonnes of greenhouse gas emissions.</p>
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Read more:
<a href="https://theconversation.com/buildings-produce-25-of-australias-emissions-what-will-it-take-to-make-them-green-and-wholl-pay-105652">Buildings produce 25% of Australia's emissions. What will it take to make them 'green' – and who'll pay?</a>
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<p>Our research confirms the policy proposition that minimum house energy regulations based on the <a href="http://www.nathers.gov.au/">Nationwide House Energy Rating Scheme</a> are a powerful instrument for delivering better environmental and energy outcomes. While introducing minimum standards has significantly lifted the bottom end of the market, those standards should be reviewed regularly to ensure optimal economic and environmental outcomes.</p><img src="https://counter.theconversation.com/content/118820/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Trivess Moore has received funding from various organisations including the Australian Research Council, Victorian Government and various industry partners.</span></em></p><p class="fine-print"><em><span>Michael Ambrose has received funding from government departments including the Department of Environment and Energy and the CRC for Low Carbon Living. CSIRO owns the AccuRate Sustainability software which is the benchmark tool used in the NatHERS software accreditation process. CSIRO receives financial benefit from the creation of NatHERS Certificates which is then used to maintain and develop the accreditation software.</span></em></p><p class="fine-print"><em><span>Stephen Berry has received funding from various industry and government organisations including the Australian Research Council, the Government of South Australia, and the CRC for Low Carbon Living.</span></em></p>Australia requires a minimum six-star energy rating for new housing. New homes average just 6.2 stars, so builders are doing the bare minimum to comply, even as the costs of this approach are rising.Trivess Moore, Lecturer, RMIT UniversityMichael Ambrose, Research Team Leader, CSIROStephen Berry, Research fellow, University of South AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/999402018-08-13T20:17:39Z2018-08-13T20:17:39ZToo many Australians have to choose between heating or eating this winter<figure><img src="https://images.theconversation.com/files/231528/original/file-20180810-2918-1c7gnr3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">If you worry about where your next meal will come from, you're not "food secure".</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/empty-green-dish-on-wooden-table-1150982357?src=TzP7V4DwZeqKvDd8BTjcfg-1-54">Shutterstock</a></span></figcaption></figure><p>You’d expect a dual-parent family on a median income to be able to put enough healthy food on the table. But once the cost of housing, transport and school are covered, too many Australians are having to choose between heating or eating. </p>
<p>We’ve long known the price of food is a problem for refugees, Indigenous Australians, people who are homeless and other vulnerable groups. But new research reveals almost half of the Australians who are classified as “food insecure” (48%) are <a href="https://www.sbs.com.au/food/health/article/2018/07/24/hunger-its-hidden-problem-facing-middle-income-families-too">employed</a> either full-time, part-time or casually. And 40% of these homes include children.</p>
<p><a href="http://www.fao.org/docrep/016/i3027e/i3027e.pdf">Food insecurity</a> is the limited or uncertain ability to access enough safe, nutritious and culturally appropriate food for an active and healthy life. If you rely on emergency food pantries, often can’t afford lunch, or worry about where your next meal will come from, you’re not “food secure”. </p>
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Read more:
<a href="https://theconversation.com/successful-failures-the-problem-with-food-banks-86546">'Successful failures' – the problem with food banks</a>
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<p>Food insecurity has devastating mental and physical effects for individuals and carries a significant economic burden for society more broadly. We can and must do better.</p>
<h2>Who is food insecure?</h2>
<p>In 2012, the <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/4364.0.55.007%7E2011-12%7EMain%20Features%7EAbout%20the%20National%20Nutrition%20and%20Physical%20Activity%20Survey%7E731">Australian Bureau of Statistics estimated</a> food insecurity affected one million (or 4% of) Australian households. </p>
<p>But other estimates are much higher. In 2017, Foodbank Australia reported <a href="https://www.foodbank.org.au/wp-content/uploads/2017/10/Foodbank-Hunger-Report-2017.pdf">3.6 million Australians</a> (15%) were food insecure. </p>
<p>It’s difficult to get a current and accurate picture of the problem because Australia doesn’t collect national, regular or comprehensive data on food insecurity. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/231424/original/file-20180810-30455-6xr3ll.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/231424/original/file-20180810-30455-6xr3ll.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=369&fit=crop&dpr=1 600w, https://images.theconversation.com/files/231424/original/file-20180810-30455-6xr3ll.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=369&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/231424/original/file-20180810-30455-6xr3ll.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=369&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/231424/original/file-20180810-30455-6xr3ll.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=464&fit=crop&dpr=1 754w, https://images.theconversation.com/files/231424/original/file-20180810-30455-6xr3ll.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=464&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/231424/original/file-20180810-30455-6xr3ll.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=464&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Food insecurity is a reality for many families experiencing financial stress.</span>
<span class="attribution"><span class="source">From shutterstock.com</span></span>
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<p>The <a href="https://melbourneinstitute.unimelb.edu.au/__data/assets/pdf_file/0005/2839919/2018-HILDA-SR-for-web.pdf">median income has fallen since 2009</a>, dropping the relative poverty line. Household income is a strong predictor of food stress, suggesting “average” Australian families are now feeling the pinch at the grocery store.</p>
<h2>What’s putting pressure on household budgets?</h2>
<p>The deregulation of energy supply in Australia has <a href="https://www.sciencedirect.com/science/article/pii/S0140988318301634">significantly increased prices</a>. People are <a href="https://melbourneinstitute.unimelb.edu.au/__data/assets/pdf_file/0005/2839919/2018-HILDA-SR-for-web.pdf">spending less</a> by adapting their behaviours, such as heating fewer rooms. Low-income households have to allocate 12.4% of their income to utilities compared to 2.9% among wealthy households. </p>
<p>Existing <a href="https://www.acoss.org.au/wp-content/uploads/2016/10/Poverty-in-Australia-2016.pdf">social security payments are not keeping up with basic living costs</a>, including the cost of buying, transporting and cooking nutritious food. </p>
<p>An <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/4130.02015-16?OpenDocument">unaffordable housing market</a> is forcing families to stretch their budget to meet rent or mortgage repayments. </p>
<p>Food costs should, ideally, make up <a href="https://www.ncbi.nlm.nih.gov/pubmed/20078575">less than 20-25% of a household income</a>. Yet low income households must spend between 30-48% of their income to access nutritious food. </p>
<p>Measures to combat the pressures from the rising cost of living are not working in Australia. Food insecurity is a symptom, and it’s on the rise. So what can be done?</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/having-our-cake-and-eating-it-too-the-big-picture-on-food-security-9617">Having our cake and eating it too - the big picture on food security</a>
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<h2>How are others responding to food insecurity?</h2>
<p>In the United Kingdom, the <a href="https://foodpovertyinquiry.files.wordpress.com/2014/12/food-poverty-feeding-britain-final.pdf">All-Party Parliamentary Group on Hunger and Food Poverty</a> made 77 recommendations – ranging from reform in social security, to regulating the cost of utilities. Currently, the Scottish government is debating how to enshrine the right to food <a href="http://www.thenational.scot/news/16132740.Ministers_to_unveil_plans_to_make_right_to_food_a_legal_obligation/">in law</a>.</p>
<p>In Canada, the <a href="http://www.srfood.org/en/official-reports">United Nations Special Rapporteur on the Right to Food</a> conducted an official visit and inquiry in 2012, triggering a cascade of civic and government attention. Household food insecurity has been <a href="http://proof.utoronto.ca/resources/fact-sheets/#monitoring">monitored and reported</a> nationally, every year since 2005. And recently, a <a href="https://www.independent.co.uk/news/long_reads/canada-justin-trudeau-ontario-basic-income-kathleen-wynne-a7823126.html">Universal Basic Income</a> was piloted to address entrenched poverty.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/231426/original/file-20180810-30458-iuea5x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/231426/original/file-20180810-30458-iuea5x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/231426/original/file-20180810-30458-iuea5x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/231426/original/file-20180810-30458-iuea5x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/231426/original/file-20180810-30458-iuea5x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/231426/original/file-20180810-30458-iuea5x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/231426/original/file-20180810-30458-iuea5x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Money spent to buy food should ideally be less than 25% of the household income.</span>
<span class="attribution"><span class="source">From shutterstock.com</span></span>
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<p>In the United States, the House of Representatives just passed a <a href="https://www.ictsd.org/bridges-news/bridges/news/us-house-of-representatives-passes-farm-bill-senate-debates-own-version">Farm Bill</a> which includes nationwide programs for food stamps and nutrition programs for women and children. </p>
<p>While these solutions aren’t perfect, they demonstrate that food insecurity has been on the radar in a way it hasn’t been here in Australia. </p>
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Read more:
<a href="https://theconversation.com/hunger-in-the-lucky-country-charities-step-in-where-government-fails-90017">Hunger in the lucky country – charities step in where government fails</a>
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<h2>Home-grown solutions</h2>
<p>This complex problem requires both national and local responses:</p>
<p><strong>1) national leadership</strong>. An updated <a href="http://www.health.gov.au/internet/main/publishing.nsf/content/phd-nutrition-health">national food and nutrition strategy</a> will ensure a thriving food system, from paddock to plate. An inquiry, similar to that conducted in the UK, could initiate increased attention, adequate resourcing and comprehensive responses to food insecurity. </p>
<p><strong>2) economic action</strong>. <a href="https://www.acoss.org.au/raisetherate/">Raising the rate</a> of social security to reflect the cost of healthy food. The charitable food sector has rightly been described as a “<a href="https://www.sbs.com.au/news/insight/tvepisode/hungry">band-aid on a gaping wound</a>” and remains <a href="https://theconversation.com/successful-failures-the-problem-with-food-banks-86546">inadequate</a> to address the rising demand. Income (from employment or social security) that supports a decent standard of living would allow <a href="https://www.ncbi.nlm.nih.gov/pubmed/25716286">emergency food programs</a> across the country to close their doors.</p>
<p><strong>3) better data</strong>. The <a href="https://www.cambridge.org/core/journals/public-health-nutrition/article/developing-measures-of-food-and-nutrition-security-within-an-australian-context/6752331CF2639E4F23FF2A0C75C4C296">Australian Household Food and Nutrition Security Scale</a> should be incorporated into future ABS health surveys, alongside comprehensive <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/4364.0.55.007%7E2011-12%7EMain%20Features%7EAbout%20the%20National%20Nutrition%20and%20Physical%20Activity%20Survey%7E731">nutrition monitoring</a>. The 18-year gap between national nutrition surveys is astounding, considering Australia’s diet-related challenges and the associated economic burden.</p>
<p><strong>4) community first</strong>. Because of our geographical and cultural diversity, and the disempowerment of people most at risk of food insecurity, community-led food programs are required. We have known for at least the <a href="https://www.ncbi.nlm.nih.gov/pubmed/7603373">last 20 years</a> that when communities design and own food projects, they are more likely to succeed. </p>
<p>Healthy food is an essential human need that allows us to grow, work and thrive. This needs to be a reality for all Australians.</p><img src="https://counter.theconversation.com/content/99940/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rebecca Lindberg works in a voluntary capacity for The Community Grocer and The Right to Food Coalition. Previously worked for SecondBite. </span></em></p><p class="fine-print"><em><span>Liza Barbour is a co-convenor of Australia's Right to Food Coalition and teaches public health nutrition at Monash University. Previous employment with SecondBite.</span></em></p>The rising cost of energy and housing can leave little money to put nutritious food on the table.Rebecca Lindberg, Lecturer, Deakin UniversityLiza Barbour, Lecturer, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/882282017-11-28T19:07:38Z2017-11-28T19:07:38ZExplainer: why we shouldn’t be so quick to trust energy modelling<figure><img src="https://images.theconversation.com/files/196653/original/file-20171128-2038-1x7rjx.jpg?ixlib=rb-1.1.0&rect=0%2C60%2C5820%2C3816&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Energy policy models are only as good as the predictions they're based on. </span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>As is so often the way with political debate about new policies, much of the rhetoric around the federal government’s proposed National Energy Guarantee (NEG) is couched in terms of “the modelling”. </p>
<p>According to <a href="https://theconversation.com/energy-ministers-power-policy-pow-wow-is-still-driven-more-by-headlines-than-details-87943">modelling</a> released last week by the government, the plan will save households an average of A$120 a year while increasing the stability of our energy system and reducing greenhouse emissions. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/energy-ministers-power-policy-pow-wow-is-still-driven-more-by-headlines-than-details-87943">Energy ministers' power policy pow-wow is still driven more by headlines than details</a>
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<p>But opponents have called for the NEG to be modelled alongside alternative policies, such as an <a href="https://theconversation.com/labor-unveils-phased-emissions-trading-scheme-58458">emissions trading scheme</a> or the <a href="https://theconversation.com/the-finkel-review-finally-a-sensible-and-solid-footing-for-the-electricity-sector-79118">clean energy target</a> proposed by Chief Scientist Alan Finkel. </p>
<p>But models, while a useful tool, are not infallible. They’re only as good as the assumptions on which they are based – and the proprietary nature of most models makes it difficult to draw direct comparisons between policies. It’s worth keeping in mind what models can – and can’t – tell us. </p>
<h2>What are we modelling?</h2>
<p>To start with the basics, these models are simulations of the commercial operation of the National Electricity Market (NEM), which covers most of the country (excluding Western Australia and the Northern Territory) and delivers 90% of Australia’s electricity. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-national-electricity-market-has-served-its-purpose-time-to-move-on-80973">The national electricity market has served its purpose, time to move on</a>
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<p>The NEM is generally used to refer to both the physical structure of the grid (the power stations, interconnectors and so on) and the behaviour of market participants (generators). </p>
<p>Generators offer bids every five minutes with the volume and price of electricity they’re willing and able to supply, which are accepted (or not) by the Australian Energy Market Operator. </p>
<p>To simulate this bidding, a model must include a representative profile of demand for electricity during each five-minute period of a year in each NEM region, together with an estimate of the total electricity used in that year. </p>
<p>For greater accuracy (and complexity), the model must also simulate scheduled maintenance, the closing of old power plants, and investment in new ones (all in response to market signals). The modelled bidding behaviour may also be influenced by short- and long-term weather, solar and wind forecasts.</p>
<p>Complete simulation of the operation of the NEM requires the model to include a representation of the physical structure of the grid through which electrical energy flows. Detailed operational information is added to this, such as the running costs and technical performance of each power station, which are known with reasonable certainty. </p>
<p>But to say anything about the future, it also requires the model to make assumptions about economic factors such as the capital cost of new builds, the prices of coal and gas, future interest rates and so on. </p>
<p>It’s these economic assumptions that can make models differ radically from one another, and from the eventual reality. </p>
<h2>Models in Australia</h2>
<p>Currently in Australia there are four or five models that claim to simulate the NEM wholesale market. Each is the property of a separate commercial consultancy business. </p>
<p>Typically, all the policy work on the electricity market over the past decade or more has been informed (if that is the right word) by one or more of these models.<br>
For example, modelling for the Warburton review of the Renewable Energy Target was done by ACIL Allen Consulting; modelling for the Finkel review by Jacobs Group (formerly SKM MMA); modelling for the Victorian Renewable Energy Target by ROAM Consulting (now part of Ernst & Young); and most recently, modelling for the NEG by Frontier Economics. </p>
<p>Given the complexity of the system being modelled, it’s not surprising models differ in how they represent the NEM and its operation. But the proprietary nature of the competing models makes it virtually impossible for an outside observer (or even a client) to know what the differences are, let alone understand how that may affect the result. </p>
<p>One way to test the impact of different assumptions on a policy is to give the same set of questions and starting information to two modelling companies, and compare their results. </p>
<p>This is very rarely done, but we can look at the example of the Rudd government’s <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/Browse_by_Topic/ClimateChangeold/governance/domestic/national/cprs">Carbon Pollution Reduction Scheme</a>, which was modelled by both SKM MMA and ROAM Consulting. Surprisingly, the two models produced broadly similar results – but there was a margin of error between them. </p>
<p>It’s worth noting that the NEG, the government’s current proposed policy, has modelled household savings of A$120 per year – which could fall entirely within this margin of error.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/infographic-the-national-energy-guarantee-at-a-glance-85832">Infographic: the National Energy Guarantee at a glance</a>
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</em>
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<p>Another way to test a model’s assumptions is through “sensitivity analysis”, which is carried out by the company doing the modelling. This is simply testing with assumed values for a key factor, and comparing the results. </p>
<p>In the case of the NEG modelling, a key assumption is that the cost of financing new energy infrastructure would be around 3% cheaper with the NEG than without it. But the sensitivity analysis found if there’s no difference in financing, about half of the A$120 savings disappear. </p>
<p>This assumption rests on the policy providing stability, which reduces the risk to investors and makes raising capital easier and cheaper. It seems reasonable to assume the presence of a national-level energy policy provides better outcomes than having none at all, which is what the model tested. </p>
<p>But this is why opponents want the NEG modelled in comparison to other policies, which may provide better outcomes. The government, of course, is refusing to give its detractors ammunition by crunching the numbers on rival schemes.</p>
<p>One way to move past this bickering would be for the government to use public funds (perhaps through the Australian Renewable Energy Agency) to fund open-source models, which are then used to test public policies. </p>
<p>Allowing all interested parties to investigate and validate the model would go a long way towards restoring public trust in what has otherwise been largely a short-sighted and self-interested debate over the future of Australia’s energy market.</p><img src="https://counter.theconversation.com/content/88228/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hugh Saddler does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Much of Australia’s energy debate is centred around ‘models’ of various policies. But how do they work? And what can they really tell us?Hugh Saddler, Honorary Associate Professor, Centre for Climate Economics and Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/830302017-08-30T04:22:44Z2017-08-30T04:22:44ZForget heatwaves, our cold houses are much more likely to kill us<figure><img src="https://images.theconversation.com/files/183547/original/file-20170828-27540-ziqr2l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Soaring heating costs mean many vulnerable Australians endure cold houses and the associated risks to their health.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/senior-woman-adjusting-her-thermostat-88666006?src=CtveLNqByT5BE5DYQp5ulg-1-0">Paul Vasarhelyi from www.shutterstock.com</a></span></figcaption></figure><p>A pervasive myth in Australia is that hot weather is the greatest danger to our health. In reality, it’s more likely cold weather will kill you. </p>
<p>For all our concern about the dangers of heatwaves, simple analysis of mortality data suggests the cold months present a much greater health risk. </p>
<p>Almost 7% of deaths in Australia from 1988 to 2009 were attributable to cold weather, according to an <a href="http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(14)62114-0/fulltext">international study</a> <a href="https://theconversation.com/cold-weather-is-a-bigger-killer-than-extreme-heat-heres-why-42252">reported in The Conversation</a>. Less than 1% of deaths were attributable to heat. </p>
<hr>
<p><em><strong>Further reading:</strong> <a href="https://theconversation.com/cold-weather-is-a-bigger-killer-than-extreme-heat-heres-why-42252">Cold weather is a bigger killer than extreme heat – here’s why</a></em></p>
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<p>Relating simple monthly mortality rates with temperature data for South Australia, we also see a clear and significant relationship between excess deaths and monthly mean temperature. The compelling graph below suggests that, rather than focusing our attention on heatwaves in summer, we should be far more worried about keeping people warm in winter. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/183381/original/file-20170824-28115-1nskw6r.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/183381/original/file-20170824-28115-1nskw6r.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/183381/original/file-20170824-28115-1nskw6r.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=441&fit=crop&dpr=1 600w, https://images.theconversation.com/files/183381/original/file-20170824-28115-1nskw6r.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=441&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/183381/original/file-20170824-28115-1nskw6r.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=441&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/183381/original/file-20170824-28115-1nskw6r.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=554&fit=crop&dpr=1 754w, https://images.theconversation.com/files/183381/original/file-20170824-28115-1nskw6r.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=554&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/183381/original/file-20170824-28115-1nskw6r.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=554&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><span class="license">Author provided</span></span>
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<p>Australia may well be a sunburnt country, but even though most us live in parts of the nation with a mild climate, an increasing pool of empirical and anecdotal evidence suggests our houses are <a href="https://link.springer.com/article/10.1007/s10901-008-9105-1">some of the coldest in the world</a>. </p>
<p>While clearly not the only contributing factor to high wintertime mortality and ill-health, housing is an important place to start. After all, Australians spend <a href="https://www.environment.gov.au/topics/environment-protection/air-quality/indoor-air">up to 90% of their lives indoors</a>.</p>
<h2>Why do Australians suffer cold houses?</h2>
<p>We suggest several explanations for Australia’s “cold house” phenomenon: </p>
<ol>
<li><p>Australian houses are mainly designed to keep us cool in summer rather than warm in winter, so are often hard (or costly) to heat. Thus the quality of housing that people are able to access is critical in shaping their exposure to or protection from cold conditions.</p></li>
<li><p>The dominant heat narrative running through public health awareness campaigns and an overwhelming research focus on keeping houses cool continually reinforce the collective perception of Australia as a summer country. Keeping warm in winter has become an afterthought, an exercise in resilience. However, many Australian climates have more heating degree days than cooling degree days, so it takes more energy to make our houses comfortable in winter than in summer. </p></li>
<li><p>Australian housing is built to relatively poor minimum thermal performance standards. These provisions, once considered progressive, have not been significantly enhanced for the past decade. One <a href="http://lowcarbonlivingcrc.com.au/sites/all/files/publications_file_attachments/best_practice_policy_and_regulation_14_march_2017_crclcl.pdf">report suggests</a> the standards are unlikely to be meaningfully revised until 2022 at the earliest. And once housing is built, there are no mandatory compliance checks for quality, insulation or warmth in either the owner-occupier or rental sectors. </p></li>
<li><p>Fuel poverty is adding to the cost-of-living pressures on Australian households. For some, the cost of adequately heating draughty and poorly insulated homes is too high. A <a href="http://www.acoss.org.au/wp-content/uploads/2017/07/ACOSS_BSL_TCI_Empowering-households.pdf">recent report</a> suggests the number of Australians experiencing energy poverty is likely to be much higher than the 3 million living below the poverty line.</p></li>
<li><p>Partly due to the above, we lack reliable, systematic and publicly available data about cold houses in Australia. This makes it difficult to track and make visible the extent of the problem. </p></li>
</ol>
<p>Realistically, most of us can do something about cold houses. We can, for example, spend more on power, fit solar panels, install insulation, or buy (or rent) well-designed warm houses. </p>
<p>For people who are unable to take these steps, the cold house phenomenon bites hard. It may be because their houses are not designed to stay warm in winter and they cannot afford improvements. They may be in a rental tenancy where the landlord is unwilling to complete upgrades, or heating costs may just be too high.</p>
<p>Whatever the reason, exposure to cold living environments has a well-documented range of health effects. These include cardiovascular disease, respiratory illness and communicable diseases.</p>
<p>Importantly, it’s often the people most vulnerable to these health effects who live in cold housing – the elderly and people with existing health conditions.</p>
<h2>What is our research finding?</h2>
<p>Preliminary findings from <a href="http://architecture.adelaide.edu.au/research/groups/healthy-cities/">a study</a> of cold houses in Adelaide this winter support the points above. The participants we interviewed experience cold housing for a wide range of reasons. </p>
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<img alt="" src="https://images.theconversation.com/files/183551/original/file-20170828-27584-1eru2tq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/183551/original/file-20170828-27584-1eru2tq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=649&fit=crop&dpr=1 600w, https://images.theconversation.com/files/183551/original/file-20170828-27584-1eru2tq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=649&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/183551/original/file-20170828-27584-1eru2tq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=649&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/183551/original/file-20170828-27584-1eru2tq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=816&fit=crop&dpr=1 754w, https://images.theconversation.com/files/183551/original/file-20170828-27584-1eru2tq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=816&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/183551/original/file-20170828-27584-1eru2tq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=816&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Sealing gaps can help keep out the cold, but some people aren’t in a position to upgrade and repair their homes.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hands-worker-using-silicone-tube-repairing-584279548">shutterstock</a></span>
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<p>For some, the cost of energy was broadly affordable, but the poor dwelling design meant heating had to be run all or most of the time. Once heating was turned off, draughts from badly sealed windows and doors, or lack of insulation in the walls and roof caused rooms to cool down quickly. </p>
<p>For others, the fear of a big energy bill stopped them using heating at all. They made do with whatever was available to them, such as extra layers of clothing and blankets.</p>
<p>These participants often had the worst housing, with no north-facing windows to make the most of any sunshine, no insulation, poor building sealing, inefficient heating and no foreseeable opportunity to improve the dwelling. </p>
<p>The poorest and the most unwell of our participants were keenly aware of the health effects of their cold houses, suggesting that “every illness is worse” in the cold. </p>
<h2>What can be done about cold housing?</h2>
<p>We suggest the following priorities to tackle the problem:</p>
<ol>
<li><p>Develop the capacity to identify the people who are affected by cold housing. Though this likely touches many different households nationally, special targeted assistance to people who are especially vulnerable to cold housing or its health effects has a clear social justice justification. This assistance would be similar to the UK’s winter fuel payments. </p></li>
<li><p>Focus on making both new houses (with performance standards) and old houses (with retrofit schemes) better able to stay warm without over-reliance on heating.</p></li>
<li><p>Establish ways to reduce broader fuel poverty. This requires strong national leadership and large-scale policy responses that relieve the pressure of high energy costs for our most vulnerable. This may take the form of targeted energy concessions, standardising of consumer power contracts, or welfare-focused bulk energy purchasing schemes.</p></li>
<li><p>In the absence of reliable methods to measure the problem, we need to produce evidence and generate a national discussion.</p></li>
</ol>
<p>But the first step is breaking the myth of heat in Australia. Acknowledging that cold is a more pressing problem than heat forces us to look differently at building performance standards, underpins the need for design responses that are warm in winter as well as cool in summer, and focuses our attention on vulnerable Australians who need help to make their houses affordably warm.</p><img src="https://counter.theconversation.com/content/83030/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Emma Baker receives funding from the Australian Research Council (ARC) and the Australian Housing and Urban Research Institute (AHURI). </span></em></p><p class="fine-print"><em><span>Lyrian Daniel does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The idea of a hot and sunny land is so baked into our thinking about Australia that we’ve failed to design and build houses that protect us from the cold.Lyrian Daniel, ARC Research Associate, School of Architecture and Built Environment, University of AdelaideEmma Baker, Associate Professor, School of Architecture and Built Environment, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/479522015-10-15T10:56:38Z2015-10-15T10:56:38ZAs thousands die, the UK must face up to its responsibilities on fuel poverty<figure><img src="https://images.theconversation.com/files/98094/original/image-20151012-17809-1kncbqk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">On a knife edge. Winter strikes.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/pattipics/5419400190/in/photolist-9fTQSj-9fQLai-9fQKDz-9fTRkf-9h7xfD-brnzX3-93Dygp-5LtzUC-7E5LXm-7xDCd3-93SosT-8XAYXv-7uw2Fs-9bGFP5-9bDA3Z-9bDAB8-L7Cjw-7oVGoo-dM8uqD-5Mcn6H-5RYBXY-8hRipV-9n5obX-9fhVZP-7pfpRK-7KN65S-7ueyLx-9HZE9-dNwL6n-4q1CZx-G3BzX-7BhwVe-dLatxV-5VNG2B-5VNFRP-7tz7Dy-7Bhq3B-7DSxzH-dLfZ17-dLatvn-7us9jg-kkus-9HZoC-4s6cuL-4s2adv-5Ub44N-7uw2cs-5UKqNa-4szYGv-98zG1c">patti haskins</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>As we approach winter, many of us start turning the heating back on, but there are thousands of people across the UK who dread the onset of colder weather as they are forced into the fuel poverty trap. It is a phenomenon that kills, and worse, something we have become accustomed to. Another year, <a href="http://www.theguardian.com/society/2015/jan/09/working-households-fuel-poverty-rising-energy-bills-policy-exchange">another set of headlines</a> that should shock us into action, but rarely do.</p>
<p>In 2013, an estimated <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/429873/Fuel_Poverty_Annual_Report_2015.pdf">2.35m households</a> lived in fuel poverty in England. Furthermore, there are an estimated <a href="http://www.energybillrevolution.org/wp-content/uploads/2015/04/ACE-and-EBR-factfile-2015-04-Chilled-to-Death-Updated.pdf">26,000 deaths each year</a> which can be linked to the cold weather during the winter months, and at least partly explained by fuel poverty. </p>
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<figcaption>
<span class="caption">Fuel poverty statistics for England (2003-2013)</span>
<span class="attribution"><span class="source">DECC, 2015. Annual Fuel Poverty Statistics Report.</span></span>
</figcaption>
</figure>
<p>Fuel poverty is a persistent problem, but what exactly is it? There is no one global definition of fuel poverty, but many countries use the initial UK definition. In brief, you are in fuel poverty if you need to spend more than 10% of your income on heating and electricity in order to have the required energy services to cook, have lighting, keep warm, have a hot shower and so on. This definition has been updated since, but the old version is still widely used <a href="http://bpie.eu/uploads/lib/document/attachment/60/BPIE_Fuel_Poverty_May2014.pdf">across EU countries</a>. It also means that it is possible to be fuel poor even though you may not be otherwise living below the poverty line. </p>
<p>It is estimated that anywhere between <a href="http://bpie.eu/uploads/lib/document/attachment/60/BPIE_Fuel_Poverty_May2014.pdf">50m-125m people live in fuel poverty in the EU</a>, and that figure is expected to rise in the coming years. Whichever end of that range you choose to believe, then this is a significant number considering that there are around 500m people <a href="http://europa.eu/about-eu/facts-figures/living/index_en.htm">living in the EU</a>. While the issue of fuel poverty has been recognised in many countries, awareness is still lacking. </p>
<h2>Cause and effect</h2>
<p>There are usually three causes linked to fuel poverty: the poor <a href="https://theconversation.com/uk/topics/energy-efficiency">energy efficiency</a> of housing stock; high energy bills; and low incomes. As a combination, these three factors often mean that people vulnerable to fuel poverty have to make hard decisions over which room of the house to heat and whether to wash clothes by hand or not wash them at all. Furthermore, being fuel poor also means that you are more likely to suffer from poor health, especially respiratory diseases like asthma, as well as anxiety and depression. <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/405588/fpag_12th_annual_report_2013_2014.pdf">The Fuel Poverty Advisory Group</a> estimated in February that the impact of cold homes cost the NHS some £1.36 billion every year. </p>
<p>There have been numerous programmes in the UK, which have been aimed at fuel poverty, including <a href="https://www.gov.uk/winter-fuel-payment/overview">the Winter Fuel Payments</a>. However, it seems that official action on fuel poverty has not been able to get to the root of the problem – especially given that the government’s <a href="http://www.energybillrevolution.org/wp-content/uploads/2015/04/ACE-and-EBR-factfile-2015-04-Chilled-to-Death-Updated.pdf">commitment to deliver energy efficiency measures</a> has reduced considerably in the last two years. </p>
<p>Being fuel poor often has a stigma attached to it and it is not always easy for authorities to immediately recognise those who may be in need of help. The persistence of the problem has prompted others to dive in. These have included health workers, who can see a benefit in helping those who live with fuel poverty and have respiratory or other health complaints. It is a simple equation as lifting people out of fuel poverty usually also improves their health, which then reduces their need for hospital visits. You also get interventions from civil society; community groups which address sustainable energy often have both the means and the motivation to offer help.</p>
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<figcaption>
<span class="caption">Energy Cafe in action.</span>
<span class="attribution"><a class="source" href="http://selce.org.uk/wp-content/uploads/2014/12/gi-energy-advice.jpg">South East London Community Energy (SELCE)</a></span>
</figcaption>
</figure>
<p>Those community-run initiatives can include “energy cafés” like the events run by <a href="http://selce.org.uk">South East London Community Energy</a>. Around ten energy cafes have been set up across the UK by different groups, to provide information and advice for those vulnerable to fuel poverty. They often involve getting volunteers into a high street location for a limited amount of time, from where they can hand out advice about energy issues to the public. This might focus on energy market engagement – like how to switch energy providers, on energy efficiency or behaviour change. These community-led cafés are pretty well placed to reach those at risk of fuel poverty; it can be as simple as an informal discussion over a cup of tea. </p>
<h2>Stepping in</h2>
<p>However, the immediate question this raises is clear. When ad hoc initiatives start to address national concerns, then it is time to ask whose responsibility is it really to tackle fuel poverty, and who should pay for it? Should it be community groups, health authorities or the government? </p>
<p>Community groups are well placed to access people in a subtler manner than government agencies or energy companies might be able to. However, many rely on volunteer time and grant money – both often intermittent and limited. </p>
<p>While fuel poverty has been tackled from many angles, the problem ultimately cannot be solved without dedicated, long-term, government action to address the quality of the housing stock, not only in terms of improved energy efficiency but also in terms of improved quality of life. It is vital that we as a society address fuel poverty as part of a wider ethics issue, and ask the government can it really afford to lose another 26,000 people to fuel poverty this winter?</p><img src="https://counter.theconversation.com/content/47952/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dr Mari Martiskainen works for the Centre on Innovation and Energy Demand, based at University of Sussex. She is funded by the RCUK Energy Programme and received an additional small grant in June 2015 from the Chesshire Lehmann Fund to research the impacts of community action on fuel poverty. She is a member of Green Alliance. </span></em></p>When cold weather hits, heating costs can be a matter of life and death. So why are community groups the front line and not government?Mari Martiskainen, Professor of Energy and Society, SPRU, University of Sussex Business School, University of SussexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/309692014-09-23T01:22:47Z2014-09-23T01:22:47ZPriming for Indonesia’s fuel subsidy cut<figure><img src="https://images.theconversation.com/files/59109/original/8chscq2h-1410842889.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">In Indonesia, motorists quickly line up in the petrol station before subsidised fuel price go up. </span> <span class="attribution"><span class="source">EPA/BIMO SATRIO</span></span></figcaption></figure><p>Discounts for fuel in Indonesia have been hurting Southeast Asia’s largest economy. Set to inherit an account deficit when he takes office in late October, newly elected president Joko Widodo has pushed his predecessor to start rising petrol prices now. </p>
<p>But outgoing president Susilo Bambang Yudhoyono, who raised fuel prices last year by 33%, <a href="http://www.thejakartapost.com/news/2014/08/28/jokowi-fails-persuade-sby-fuel-subsidy.html">has refused</a> Widodo’s request - with good reason. Now is not the time to cut subsidies. </p>
<p>Sudden fuel price hikes that come from improperly planned subsidy cuts can rock the country’s political stability and hurt the economy, which has become dependent on the government’s highly generous petrol subsidies. </p>
<p>Joko Widodo has said he would phase out the subsidies in four years. He should time them wisely. The government must choose the most comfortable times for the public to ease inflation shocks. They should also prime the public before cutting them off from cheap fuel to avoid violent protests. </p>
<h1>Unsustainable and misplaced</h1>
<p>To be clear, fuel subsidies should be scrapped. They distort prices. They are unsustainable and misplaced. Thanks to government subsidies which buffer the cost of production and global crude oil prices, petrol in Indonesia is among the cheapest in the world, at Rp6,500 (or around A$66 cents) per litre. In comparison, non-subsidised petrol costs Rp12,000 per litre. Indonesia spends 20% of its budget, or around A$22 billion per year to keep fuel prices at this rate. In comparison, the government allocates around A$45 billion for education, health and housing combined.</p>
<p>Indonesia has subsidised its fuel consumption since 1967, when it was a big oil producer. In 2004, it became a net oil importer, with a big appetite for petrol. Increasing purchasing power has brought more motorists in Indonesia’s urban areas whose fuel bills are partly paid by the government.</p>
<p>The expensive oil imports have caused an account deficit for the last two and a half years. Indonesia’s current account deficit will be around 3.2% of GDP by year-end. </p>
<p>The subsidy is intended to help Indonesia’s poor. But those benefiting most are the rich in urban areas. They consume 84% of subsidised petrol.</p>
<p>The fuel discounts also limit the government’s ability to attract foreign investments and spur trade activities. Doing business in Indonesia is costly. The country does not have adequate roads, ports and bridges to transport goods across the vast archipelago. The government should spend at least 30% of its budget to improve its infrastructure and reduce logistic costs for businesses. Currently infrastructure gets 11% of the budget.</p>
<h1>Timing and priming the public</h1>
<p>Reforming the subsidies system will bring a positive effect for the economy in the long run. But in the short term it would put a strain in consumers — rich or poor — and businesses.</p>
<p>Cost of production will increase. Jobs will be cut. Prices will skyrocket, lowering people’s purchasing power. Discontent will quickly simmer among the public. Suharto lost his 32-year rule in Indonesia after IMF-mandated rises. </p>
<p>Therefore, to ensure subsidy reform success, Widodo should consider two things before raising fuel prices: the time of the year with the lowest inflation rates and public readiness. </p>
<p>The best times to cut subsidies are October-November or March-April. October is the start of Indonesia’s harvest season. High supply of basic commodities lower prices and inflation rates. March is also harvest season and the start of the government fiscal year.</p>
<p>Widodo should reduce the subsidy during these periods to help ease the inflation stress on consumers and manage expected inflation pressures. Rather than rush in a subsidy cut in the next few weeks, Widodo would be better off waiting until March, giving Indonesians time to plan their future consumption based on expected inflation and minimising a drop in consumer spending. </p>
<p>For a strategic decision with large social and economic consequences, the government should not rush. They should carry out public campaigns on the importance of subsidy cuts. Policy makers should properly inform the public on what is realistic to manage their expectations. </p>
<p>When people’s perception on how much their money is worth is aligned with the government’s, it would be easier for Indonesians to tolerate the pain from rising fuel prices.</p><img src="https://counter.theconversation.com/content/30969/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Fithra Faisal Hastiadi does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Discounts for fuel in Indonesia have been hurting Southeast Asia’s largest economy. Set to inherit an account deficit when he takes office in late October, newly elected president Joko Widodo has pushed…Fithra Faisal Hastiadi, Research and Community Engagement Manager at Faculty of Economics , Universitas IndonesiaLicensed as Creative Commons – attribution, no derivatives.