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Targeted Energy Investments Promise Social Yields Utility Cost Burden Disproportionate for Low-Income Households
November, 2008
By Clifford Maynes
Almost every Canadian household feels the pain of rising costs of home heating and electricity, but low-income households can least afford to pay. Given their limited means and other factors, low-income households spend much less on utilities in absolute terms, but are forced to spend a much larger proportional share of their available resources on energy and water.
Energy burden is the term used to describe the percentage of income spent on home energy. In 2006, average household income among the lowest quintile of earners was $16,093, of which $1,175 was spent on water, fuel and electricity - representing 7.3% of income.
In contrast, the average energy burden for the highest income quintile was only 2% even though in terms of absolute spending the relationship was reversed. The average household in the highest income quintile spent almost 2.5 times more on energy and water.
CLEAR SAVING OPPORTUNITIES
Although there hasn't been a systematic study of energy efficiency potential in Canada's low-income housing, a target of 20% savings does not seem unreasonable. Low-income households have a greater tendency to live in older dwellings constructed prior to 1980, and a third live in dwellings constructed prior to 1946. Older homes are more likely to be in need of repair, and a database of 200,000 energy audit ratings published by Natural Resources Canada shows much higher energy consumption in older houses.
Canada's short-lived EnerGuide for Low-Income Households (EGLIH) program reported actual measured savings of 20% in 231 completed retrofits. However, potential savings of 39% were identified in 960 energy audits, suggesting that even higher savings could be achieved. Actual measured savings under the EnerGuide for Houses Retrofit Incentive program (56,000 houses) were 27%, again suggesting that even higher savings could likely by achieved in the low-income housing sector.
The inefficient use of energy in low-income housing is a profound waste. Given that the total annual utilities bill for the lowest income quintile is about $3.1 billion, a 20% saving through efficiency measures could save $620 million annually.
High utilities costs are an increasingly significant barrier to poverty reduction. For governments of all levels, social spending that could otherwise help improve the well-being of less privileged Canadians is being used to heat leaky, poorly insulated housing with inefficient heating systems.
Bill assistance programs - like the federal government's $1.3-billion program in 2000 - absorb tax revenue that is therefore unavailable for other pressing social priorities. High energy costs increase pressure on community relief agencies and emergency shelters and seniors may be forced to move out of their own homes for assisted housing. Inefficient energy use in low-income households is also a serious barrier to Canada's environmental goals, including reduction in greenhouse gases.
PROGRAM DELIVERY STRATEGIES
The cheapest program design is simply to offer enhanced retrofit incentives to the owners of buildings with low-income occupants. This was essentially the design of the EnerGuide for Low-Income Households (EGLIH) program. Participants were required to apply, get an energy audit, find contractors and enter into agreements with them to complete approved retrofits, which were then paid for by the government.
During its short life, EGLIH certainly attracted participants who were able to navigate through these requirements and complete retrofits. However, participant-managed programs tend to favour those with the greatest capacity like, for example, retired seniors who are income-poor but asset-rich.
To reach those who need it most, barriers to participation need to be systematically addressed with a bundled turnkey service, in which audits and retrofits are managed on behalf of the participant. In some cases, a single agency may deliver the entire service, including the retrofit. In others, retrofits are performed by external contractors and merely managed by the agency.
Program delivery strategies need to be tailored to the needs of the participant. Barriers are experienced not only by owner-occupied households, but also often by private rental and social housing providers. Even within these categories there are major differences in support needs, for example, between large corporate landlords and small mom-and-pop landlords, or between social housing agencies with hundreds of units versus a volunteer church group with a single building.
Different building types also pose different barriers. Shelters for the homeless and others occupy a wide variety of building types, including renovated industrial buildings.
Mass marketing is unlikely to suffice as a way of reaching those who are hardest to reach and often need it most. Program participants in all sectors need to be engaged proactively through a network of community and sectoral organizations.
The message, and the messenger, has to fit the target. For example, new Canadians need to be reached in their native tongue.
PARTICIPANT COSTS
Participants in low-income energy efficiency programs benefit whether they are occupants or housing providers. Should they contribute?
For low-income owner-occupants, there is a strong argument against any charge. It is a barrier to participation and therefore an obstacle to achieving program goals. For social housing, a similar argument applies.
For private rental housing, energy efficiency not only lowers energy cost to the occupants, but also provides a capital improvement to the property owner. The building is improved physically through measures such as new heating systems, and building quality may be improved, maintenance costs lowered, building life extended and units made more marketable. Resale value may be improved.
American experience indicates that when retrofit programs are well established in local markets, private landlords are ready and willing to make a contribution toward retrofit costs. This requirement should not be set too high at the outset until the value of retrofits has been established. Agreements need to ensure flow-through of program benefits to tenants.
EFFICIENCY MEASURES
Some low-income energy efficiency programs address measures for only one energy source - e.g. the Ontario Power Authority's low-income programs to reduce electricity use. However, it is very difficult to market programs with this narrow focus and a single fuel program limits economies of scope and scale. Programs should address all fuel types.
There are also programs that address a single efficiency measure - e.g. only fridges or only heating systems. Again, there are concerns about economies of scope and scale and lost opportunities to capture saving from measures that aren't on the list. All measures need to be considered, including not only building retrofits, but also participant (occupant, owner, operator) behaviour.
The objective of low-income programs should be to capture all cost-effective savings. Since every building is different, a site-specific assessment is needed to ensure that measures are appropriate to the building. Ideally, every building should have a full-scale professional energy audit, but, particularly in large-scale programs, it is preferable where possible to use smart protocols - simplified and less expensive decision-making tools that identify cost-effective investments.
Another consideration: many low-income households require basic health and safety investments in conjunction with energy efficiency investments. Building envelope improvements are useless if windows are broken. Programs need to allow for cost-effective delivery of health and safety upgrades at the same time as energy saving measures.
CAPACITY DEVELOPMENT
Delivering low-income programs can require an extensive infrastructure, including outreach, recruitment, auditing, installation of measures and program management. It may be necessary to invest in the development of this infrastructure, notably installation contractors with niche skills like air leakage control.
Instead of relying on the market to generate the needed supply of contractors, skills development may be necessary, including cross-training in the interaction between measures (e.g. insulation installers need to protect the building envelope to avoid increased air leakage). Some programs address contractor skill requirements by training and employing retrofit crews directly rather than relying on the market to provide them.
The preceding is an excerpt from a background paper developed to inform discussion at Green Communities Canada's national conference on energy poverty issues, held in Toronto, September 29 - October 1, 2008. Clifford Maynes is the Executive Director of Green Communities Canada. The complete paper can be found on the Green Communities Canada web site at www.greencommunitiescanada.org.
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