Modelling fuel poverty and market failures

Fuel poverty has been defined in Scotland as a situation in which more than 10% of household income needs to be spent on all fuel use to keep the house ‘acceptably’ warm (based on Boardman 1991). Building fabric is a major contributing factor to maintaining a comfortable temperature in the home. The housing and home improvement markets thus play an important role in ameliorating fuel poverty. Houses in Scotland have an Energy Performance Certificate, giving them a rating using seven bands from A, the most energy efficient, to G, the least. In work currently under review, Liu et al. have shown that in Aberdeenshire, more efficient homes do attract a premium on the rental price. Grants and interest-free loans are available for home improvements through government-funded schemes. Though aimed primarily at homeowners (some of whom are fuel poor), some private landlords are eligible; there are also schemes that tenants can apply for. Further, energy companies have obligations to provide free insulation and heating improvements to qualifying households. Many such schemes are not taken up by households, however, and this is a cause for concern. Another major market is domestic energy supply. Here, low-income families are at a disadvantage as many are on prepayment meters. Tariffs for these are typically higher than on credit meters, so low-income households generally pay more per unit of energy consumed than better-off households. Understanding fuel poverty requires modelling that does justice to the complexities of interacting markets and multidimensional priorities of the actors in them.