Benefits to Vulnerable Consumers in Italian Energy Markets: A Focus on the Eligibility Criterion

In this chapter we provide evidence on how the appropriateness of the eligibility criteria for household energy subsidies can be assessed using different definition of energy affordability. In this regard, we discuss the debate about the concepts of affordability and the statistical indexes that are typically adopted to assess the issue. Each approach can produce a somehow different picture of households’ vulnerability in energy consumption (see Hills 2012). The key point is that the ideal affordability indicator should accommodate—with appropriate weights—numerous elements. On the one hand, the indicator must be sensitive to changes in supply-side variables (i.e., energy prices, technology, quality of service), and on the other hand, it must take into consideration consumers’ needs and preferences. This seems to be a particularly complex goal, given the heterogeneity of the households’ living conditions (e.g., climate, type of housing), and composition (e.g., number of family members, presence of children and/or elderly and disabled). In our discussion on the pros and cons of the different affordability measures, we show how in the Italian retail energy markets alternative affordability indexes can affect the perception of the diffusion of energy poverty. More specifically, we use the 2012 European Union Surveys on Income and Living Conditions (SILC) to estimate indexes of affordability based on the incidence of the energy expenditure on the family budgets, as well as two ad hoc variations of the low income–high cost (LIHC) index proposed by Hills for fuel poverty in the United Kingdom. We also consider self-assessed indicators of energy vulnerability, such as the presence of leaking roofs or broken windows, the inability to keep the house adequately warm, and the presence of arrears for utility bills. As expected, the picture one gets on the extent of energy affordability problems substantially depends on how one defines and measures it. Last, we evaluate the effectiveness of the energy benefit system introduced in Italy in 2008. In particular, we investigate to what extent the eligibility rules really benefit households with energy affordability problems. Our results highlight that the eligibility rules are affected by several limitations: overall, about 15 percent of the households in absolute poverty do not meet the criteria, only 43 percent of the households at risk of poverty and no more than 61 percent of those with energy affordability problems qualify for the benefits.