600,000 More Households in Germany Fall Below the Threshold at Which They are at Risk of Poverty

29/03/2022

The RWTH Chair of Energy System Economics has examined the effects of rising energy prices. Low-income households are also being disproportionately burdened as a result of the war in Ukraine.

 

Energy prices have risen very sharply in recent months. Most recently, the war in Ukraine has caused further tension in the already very high energy prices. The steep energy price increases also place a burden on private households. In a short study by the Chair of Energy System Economics at RWTH Aachen University, these effects were investigated using energy economic simulation models.

According to the results of the study, there is a significant additional financial burden across all household groups. An average four-person household that obtains heat from a gas heating system currently has to reckon with additional expenditure of 1,624 euros per year compared with the beginning of 2020, i.e. before the effects of the Coronavirus pandemic. Of this, electricity accounts for 10.6 percent (172 euros), natural gas accounts for 46.4 percent (753 euros), and gasoline and diesel account for 43.0 percent (699 euros).

The study examines the consequences for households with different income levels. The annual additional expenditure for the lowest-income households in the lowest decile is 492 euros compared with the beginning of 2020. The additional expenditure of the highest-income households in the top decile is 1,419 euros. Although there is a factor of 2.9 between the two household groups in terms of additional expenditure on energy, there is a factor of 8.2 between the disposable incomes of the two household groups when they are compared.

Lowest-income households hit the hardest

The lowest-income households are therefore most affected by this rise in energy prices in proportion to their income. According to the study's findings, the significant rise in energy prices since the beginning of 2020 alone will cause around 600,000 additional households in Germany to slip below the threshold at which they are at risk of poverty. In the lowest decile, natural gas dominates with 42 percent of the total additional expenditure on energy. This share is 31 percent for the highest-income households in the top decile. Conversely, in the highest-income household decile, additional spending on gasoline and diesel dominates with a share of 43 percent. This figure is 24 percent in the lowest-income decile.

Furthermore, the study concludes that households are significantly reducing their energy consumption in the face of high prices. As a result of higher energy prices, the average four-person household reduces its electricity consumption by 4.9 percent (202 kWh), natural gas consumption by 25.0 percent (3,436 kWh) and uses 14.0 percent (205 liters) less fuel (gasoline and diesel) over a typical year.

According to the Chair's study results, high-income households are more likely to benefit from the relief recently presented by the German government for consumers of gasoline and diesel, while low-income households are more likely to benefit from reductions in the price of natural gas. Furthermore, the authors of the study advise against relief via a direct reduction in energy prices if possible. This is because the high prices would also help to reduce consumption of fossil fuels and import dependencies on them.

The short study is available online.