Fighting on the wrong front. Polish gvernment intends to subsidise energy consumption instead of fighting energy poverty
The Ministry of State Assets announces subsidies to energy bills for people earning less than 5 000 net per month. The reaction to the increase in electricity prices in Poland has shown that politicians are so afraid of this subject. However, they have no good idea how to solve it.
According to the ministry's preliminary concept, the surcharge may amount to a maximum of 10-12% of the annual bill, i.e. as much as the increase in electricity prices. For a person whose income falls within the first tax threshold, the surcharge will be between 34 and 307 PLN. The more someone consumes electricity, the more surcharge they will get. The mechanism proposed by Ministry of State Assets is a field for abuse. It is enough to register a meter per person generating income in the first threshold to be able to apply for support. The cost of the compensation mechanism is estimated by the Ministry at about PLN 2.5 billion. The money is to come from the sale of CO2 emission allowances. This is income to the state budget, which should support the reduction of emissions. Instead, further billions will go not to investments, but to energy consumption, because it is worth recalling that subsidies to electricity prices, although in a reduced version, are continued from 2019.
We have got a problem
Poverty, and energy poverty in particular, is a real social and political problem. In the annual household cost account - PLN 200 has a completely different value for those earning PLN 1500 and PLN 15 000. Changes in energy costs particularly affect pensioners. We will not escape the discussion on whether and how to support the less wealthy part of society in Poland if we want to support changes in the energy sector. In all scenarios, energy and heat prices will rise (although it should be noted that Poles' income is also rising). However, the current government proposal will not reduce the scale of poverty. It is very expensive, it does not get to the heart of the problem, nor does it promote rational behaviour - energy saving and low emission investments. Moreover, it incorrectly identifies the target group. Not all households with some family members in the first tax threshold are energy poor.
What is energy poverty?
Contrary to appearances, energy poverty is not well recognized and described in Poland. It is mainly related to providing thermal comfort, we pay more for heat than for electricity. We deal with energy poverty when energy costs exceed 10% of a household.
There are many reasons of energy poverty - they are not always just low income. Low energy efficiency of buildings, inefficient management of heat or electricity, too much living space, high fuel costs - all this translates into an energy bill. According to the Institute for Structural Research, about 12% of Poles are affected by energy poverty, i.e. about 4 million people - 1 million households. In the government proposal, 15 million people are to be supported.
How do we fight against energy poverty now?
Despite numerous political declarations stressing the importance of the problem, the mechanisms of poverty prevention are faulty. Poland has introduced a mechanism of energy allowances, which are granted in the form of a subsidy to the housing allowance. Only residents of multi-family buildings can apply for support. Meanwhile, the problem of poverty concerns mainly residents of single-family houses. The energy allowance is from 11 to 15 PLN per month. So, on an annual basis, we are talking about the maximum amount of 180 PLN and a bureaucratic parade that has to be passed in order to receive money. In some communes fuel surcharges are also applied. The cost of solving energy poverty is nowadays about PLN 15 million a year. In its 2018 report on this subject, NIK is very critical of the effectiveness of the mechanism.
It was already cheap
Electricity costs are only a small part of the problem. Much more important and socially sensitive are the costs of pure heat. The heat supply system is about to undergo a revolution. Today, we use heat sources without standards, without the external costs of environmental pollution. You can smoke with whatever you want, passing on health costs to the rest of society. But this has to change, Poland now has the most polluted winter air in the EU. Prices of CO2 emission allowances are rising, which are killing off local coal-based heating plants. You can no longer postpone investments. But how to provide social support for change?
Wise support for the poorest
The history of the yellow vests in France has shown that the times when costly reforms are introduced without taking into account income differences and the position of social classes are over. Poland has a lot of bad experiences of transformation. Among others, Lower Silesia, Łódź - these are regions which for many years have been carrying on with a ruthless approach to job losses. The energy transformation from the metropolitan perspective of Warsaw (which, by the way, has some of the lowest heat and electricity prices in Poland) looks different than from the perspective of a district city in eastern Poland.
The costs of changes in the power industry are high. We cannot afford to waste money. We need wise mechanisms to solve energy poverty, which will not be an immediate incentive for consumption. There are many possibilities of sensible support:
- Improving energy efficiency - in heating and electricity.
Introducing subsidies to heat costs, promoting clean sources.
These two activities are partly implemented by the NFOŚiGW Clean Air and Stop Smog programmes. However, they are too unambitious, especially in terms of energy efficiency.
It is important to gather and promote knowledge and predictability of the law:
- Creating a national energy advisory centre which will promote the best technological solutions and energy efficiency. Support of similar institutions at municipality level.
- Introducing long-term environmental objectives and energy standards so that energy consumers have time to spread costs over time and plan activities and are confident of the real benefits that the investment will bring them. Definition of financing mechanisms by the state. It cannot be allowed that high emission solutions or insufficient energy efficiency are supported from public funds.
Poland is entering a period of intensive investments in the power industry, mainly because our power plants and heating plants are old, emission-intensive and inefficient. The problem of air quality and climate change is increasingly pressing. Poverty cannot be swept under the carpet, the problem will grow. According to the EU regulations, from next year onwards, electricity prices for households will have to be freed, i.e. the tariffs set annually by the President of the Energy Regulatory Office will have to be dropped. This will be a maturity test for decision-makers and the energy market. In order to effectively combat high prices, systemic measures are needed, not public support of consumption for all Poles in the first tax threshold.
Author: Joanna Maćkowiak-Pandera PhD, President of Forum Energy
Date of publication: 03 March 2020