Poor energy poor: Energy saving obligations, distributional effects, and the malfunction of the priority group

The European Union’s Energy Efficiency Directive forces the Member States to install energy efficiency obligation schemes. In a first step, this paper identifies the distributional effects caused by this policy instrument which occur when energy efficiency measures are implemented (phase of delivery) and when its costs are passed on to the society (phase of financing). In the phase of delivery, suppliers prefer to implement measures at the property of those customers which enable them to minimise their costs, i.e. enterprises with large energy savings potentials and high-income households who can contribute a greater share of the costs. In the phase of financing, distributional effects occur when the costs of the scheme are passed on from the obliged suppliers to their customers, primarily affecting less competitive customers, i.e. households and small enterprises. In the British scheme, the so-called priority group was installed in order to decrease distributional effects and to support energy poor households. In a second step, this paper evaluates approaches to reduce energy poverty and indicates ineffectiveness, high transaction costs and incoherency with the aims of the obligation scheme. Alternative approaches to tackle energy poverty are briefly described.