The Centre for Research into Energy Demand Solutions (CREDS) published a report on 13 July 2022 examining how different routes to net-zero emissions affect UK households, concluding that the policy pathways modelled have regressive impacts on motor fuel spending and leave vulnerable groups paying the largest share of income for energy1.
The report, "The distributional effects of pathways to net-zero and the implications for fuel and transport poverty", runs to 72 pages and was written by Ornella Dellaccio, Jennifer Dicks, Michael McGovern and Jon Stenning1. It forms part of the FAIR project, funded by CREDS, which sets out to examine who is vulnerable to fuel and transport poverty, how that vulnerability shapes the UK's energy transition, and what policies would promote a more just society1.
The research modelled three scenarios for the UK economy using Cambridge Econometrics' E3ME model: one replicating the policies in the UK Government's Net Zero Strategy (NZS), one using regulatory measures, and one relying on a market-based instrument1. When the NZS was modelled, it did not achieve net-zero emissions by 20501. All three pathways produced better GDP and employment outcomes than a business-as-usual baseline, with the more ambitious market-based and regulation scenarios performing better than the NZS scenario on GDP and, to a lesser extent, employment1.
The modelling was then applied to thirteen household archetypes built on Ofgem's 2020 energy consumer archetypes, which segment the population of Great Britain, taken to represent the UK since Great Britain accounts for approximately 97 per cent of the UK population1. The report's headline distributional findings for 2035 are set out below.
| Household group | Share of income spent on energy by 2035 |
|---|---|
| Low-income ethnic minority households in social housing | 10% to 13% |
| Young (age 16 to 34) low-income renters | 9% to 13% |
| High-income families | 3% to 5% |
The report states that the archetype spending the most on energy as a proportion of income is mainly composed of ethnic minority households on a low income living in social housing, and that this is more than double the proportion spent by high-income families1. Pensioners with disabilities and long-term health conditions, on average or low incomes, are also expected to pay high energy bills across all modelled scenarios1. On transport, the report finds that young low-income households, ethnic minorities and pensioners with disabilities tend to have the highest motor fuel expenditure in all three scenarios, and that vulnerable groups are less likely to switch to electric vehicles and so benefit from lower fuel costs1.
"The policy pathways explored in this analysis all have regressive impacts in terms of motor fuel expenditure"
The report notes that its analysis uses energy prices in line with historical trends and does not reflect the sharp increase in energy prices that occurred in late 2021 and through 2022, adding that such high prices, if they persisted, would further tip the economic and distributional impacts in favour of accelerated decarbonisation, particularly measures that do not increase the energy costs households face1. It also states that a mass retrofit programme should be targeted first towards the groups most vulnerable to fuel poverty, often living in the most inefficient homes and least able to pay1.
Why it matters for households
The report's central point is that the cost of decarbonisation is not spread evenly. Households that already spend a large share of income on energy are projected to keep doing so under every pathway modelled, while wealthier households are expected to benefit widely from the shift to electric vehicles1. For a household's energy independence, the findings suggest that the ability to cut bills by installing insulation, a heat pump or an electric vehicle depends heavily on income, tenure and up-front capital, since the report links lower exposure to future fuel costs to being able to afford the switch1. The report also notes that the 2022 cost-of-living crisis, partly driven by rocketing global gas prices, made fuel and transport poverty and widening inequality more pertinent at the time of publication1.
What happens next
The report does not set out dated next steps. It proposes policies for an energy transition that promotes a more just society, and recommends targeting a mass retrofit programme first at the groups most vulnerable to fuel poverty1. No further timetable for government response is given in the report.