Energy Poverty in Japan

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Energy Poverty in Japan
32nd USAEE/IAEE North American Conference

• How does the energy price escalation affect
  low income and vulnerable households?

Shinichiro OKUSHIMA and Azusa OKAGAWA
University of Tsukuba National Institute for
Environmental Studies
2
Contents

• Introduction
• Motivation
• Energy poverty
• Concept and definition
• Methodology
• Model and microdata
• Results
• Energy price escalation
• Energy price escalation countermeasure
• Conclusion

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Introduction motivation

• Increasing concern about energy/fuel poverty in
  Japan
• Energy costs are soaring
• More dependent on fossil fuel imports after the
  Fukushima accident
• Introduction of a feed-in tariff scheme
• A new tax on fossil fuels (a carbon tax) in
  October 2012
• Raising the consumption tax twice by 2015
• A weak yen, etc.
• Share of low-income households is increasing
• Reflecting Japans aging and sluggish economy
  since the 1990s
• Deteriorating job quality
• Vulnerable households (e.g., lone-parent-with-depe
  ndent children, elderly, and single-person
  households) are also increasing

Energy poverty could be an important political
issue in Japan
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Introduction motivation

• This study examines the energy poverty issues in
  Japan by
• the applied / computable general equilibrium
  model
• the microdata on the Japanese household
• This study analyzes
• the impact on households when energy prices are
  doubled
• the effectiveness of an alleviation policy (a
  kind of social tariffs)
• This study empirically shows
• the severe impacts especially on low-income or
  vulnerable households
• An alleviation policy will be effective when the
  energy price escalation goes forward in the future

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Energy poverty concept and definition

• To date, much less attention has been given to
  the energy poverty problem in developed countries
  compared with developing countries
• The lack of access to modern types of energy
  (e.g., electricity) is the focal point in the
  context of energy poverty in developing countries
  (e.g., IEA, 2010)
• Only a few studies for developed countries except
  the UK
• In the UK, since Boardmans (1991) seminal work,
  several studies have been made
• Various reports are published by the UK
  government such as the Hills fuel poverty review
  (2011, 2012)
• The recent literature on the UK e.g., Chawla and
  Pollitt (2013), Moore (2012), and Waddams Price
  et al. (2012)
• However, no research has been found that examined
  the energy poverty problem in Japan in detail

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Energy poverty concept and definition

• Energy poverty can be defined conceptually as
• the condition of lacking the resources necessary
  to meet their basic energy needs
• A similar definition by Bouzarovski et al. (2012)
• the condition wherein a household is unable to
  access energy services at the home up to a
  socially and materially necessitated level
• In developed countries like Japan, broader issues
  that prevent people from satisfying their basic
  energy needs should be the focus of the energy
  poverty problem

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Energy poverty concept and definition

• Energy poverty can be measured practically by the
  two steps like the general income poverty
  measurement (Sen, 1979)
• Identification- who are the poor?
• Aggregation - how are the poverty
  characteristics of different people to be
  combined into an aggregate measure?
• For simplicity, this study defines energy poverty
  households as those that spend more than 10 of
  their income on energy expenses (electricity,
  gas, and heating oil)
• Identification (poverty line) energy budget
  share, 10
• Aggregation - identifying the extent of poverty
  in the society simply with the
  proportion of the poor to the total population

Energy poverty
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Energy poverty concept and definition

• The definition is similar to the UK governments
  one
• However, the energy expenses in this study are
  actual ones based on our microdata, rather than
  the calculated ones like the UK.
• Identification (setting the poverty line) and
  aggregation are controversial but necessary tasks
• Energy budget shares have often been used for the
  poverty lines (Pachauri et al., 2004).
• However, this simple 10 ratio measure has
  various problems, e.g., it pays no attention
  to the depth of poverty
• the 10 ratio measure evaluates the marginally
  poor as the same as the miserably poor
• Future research is needed for the definition

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Methodology an applied/computable GE model

• Many studies point out that economic impacts
  cannot be evaluated correctly without using
  general equilibrium models (e.g., Hazilla and
  Kopp, 1990)
• Hence, this study develops an applied/computable
  general equilibrium model with multihouseholds
  characterized by their income levels on the
  Japanese economy
• The model is composed of 10 households, 40
  industries, a government and 48 commodities (9
  fossil fuels)
• The models parameters are calibrated to the 2005
  base year social accounting matrix (SAM)
• the data sources the most recent 2005
  InputOutput Tables, the 2005 Family
  Income and Expenditure Survey, etc.

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Methodology an applied/computable GE model
  Industry (40) Industry (40)   Commodity (48) Commodity (48)
1 AGR Agriculture 1 AGR Agriculture
2 MIN Mining 2 MIN Mining
3 COG Coal, oil and gas 3 COL Coal
      4 OIL Crude oil
      5 GAS Gas
4 FDP Food 6 FDP Food
5 TEX Textiles 7 TEX Textiles
6 WPP Paper and pulp 8 WPP Paper and pulp
7 CHE Chemicals 9 CHE Chemicals
8 O_P Oil products 10 GSL Gasoline
      11 JET Jet fuel
      12 KRS Heating oil
      13 LGH Light gas oil
      14 FOA Bunker A
      15 FOC Bunker BC
      16 NPH Naphtha
      17 LPG Liquid petroleum gas
      18 OOP Other oil products
9 C_P Coal products 19 C_P Coal products
10 PLR Plastics 20 PLR Plastics
11 CLY Cement 21 CLY Cement
12 STL Iron and steel 22 STL Iron and steel
13 MTL Non-ferrous metal 23 MTL Non-ferrous metal
14 MTP Metal products 24 MTP Metal products
15 MCH Machinery 25 MCH Machinery
16 ELM Electrical machinery 26 ELM Electrical machinery
17 TRM Transport equipment 27 TRM Transport equipment
18 OMF Other manufacturing 28 OMF Other manufacturing
19 CNS Construction 29 CNS Construction
  Industry (40) cont Industry (40) cont   Commodity (48) cont Commodity (48) cont
20 NUC Nuclear electricity supply 30 ELY Electricity
21 THM Thermal electricity supply      
22 HYD Hydro electricity supply      
23 OWP Privately owned power generation 31 OWP Privately owned power generation
24 GHS Gas supply 32 GHS Gas supply
25 WTR Water supply 33 WTR Water supply
26 WST Waste management service 34 WST Waste management service
27 CMM Trade 35 CMM Trade
28 FIN Finance and insurance 36 FIN Finance and insurance
29 EST Real estate 37 EST Real estate
30 TRT Transport via railways 38 TRT Transport via railways
31 TRR Transport by road 39 TRR Transport by road
32 TRO Private transport 40 TRO Private transport
33 TRW Water transport 41 TRW Water transport
34 TRA Air transport 42 TRA Air transport
35 TRX Other transport 43 TRX Other transport
36 ICT Telecommunications 44 ICT Telecommunications
37 SVG Public service 45 SVG Public service
38 SVB Business service 46 SVB Business service
39 SVP Private service 47 SVP Private service
40 OTH Other 48 OTH Other
The model is composed with 40 industries and 48
commodities, nine of which are fossil fuels
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Methodology an applied/computable GE model
Higher income
HHLD group Yearly income (10 thousand yen)
I - 192
II 192 - 272
III 272 - 336
IV 336 - 399
V 399 - 473
VI 473 - 556
VII 556 - 655
VIII 655 - 792
IX 792 - 1003
X 1003 -
Lower income
The model has 10 household groups characterized
by income bracket
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Methodology an applied/computable GE model
Output
0
0
1
Transport and retail margin
Intermediate goods (Armington goods)
Utility
0.5
Labor
0.1
Energy composite goods
Capital
Armington goods
0.1
0.5
Electricity
Fossil fuels (Armington goods)
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Methodology an applied/computable GE model
Supply side
Industry
Import
Intermediate goods
Import goods
Labor
Capital
Goods market
Labor market
Capital market
Export
Government
Investment
Export
Households
Demand side
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Methodology Applied/computable GE model to
microdata

• This study links the simulation results given by
  the AGE model to the detailed information on
  individual households provided by the microdata

Applied/computable GE model
Evaluating the impacts of energy price escalation
on households by income decile groups
Linked
Microdata (provided by the National Statistics
Center for our research purpose)
A sample of about 50,000 households, covering the
whole of Japan The dataset is created from the
anonymized data based on the 2004 National Survey
of Family Income and Expenditure
Performing a detained analysis of the impact on
low-income and vulnerable households like
mother-child, single-aged, etc.
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Results when energy prices are doubled (Scenario
1)
X

• This study first analyzes the impact on
  households when energy prices are doubled

IX
VIII
VII
V
VI
IV
Energy prices doubled
Scenario 1
III
II
I

• In the scenario, electricity prices for
  households are doubled compared with those in the
  base case (BaU)
• Electricity price escalation is caused by the
  change of power supply composition from nuclear
  to thermal (oil and LNG), as well as rises
  in the import prices of fossil fuels
• Together with the electricity price hike, all
  kinds of energy are appreciated in the simulation
• The scenario and assumptions are in line with the
  scenarios in the governmental reports
  (e.g., Energy and Environmental Council (2012a,
  2012b))

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Results Changes in household income energy
consumption

• The table indicates the changes in household
  income, energy consumption, and energy
  consumption ratios (energy budget shares) by
  income group
• The changes in the energy consumption ratios
  (energy expenses / income) are larger for the
  lower income groups.
• The results clearly indicate that the impacts of
  the energy price escalation are regressive.

Changes in household income, energy consumption
energy consumption ratio (compared with BaU, )
I II III IV V VI VII VIII IX X
1. Changes in household income -9.7 -10.7 -11.6 -11.8 -12.1 -12.5 -13.4 -13.9 -14.5 -17.7
2. Changes in energy consumption (in real terms) -26.2 -27.3 -28.2 -28.5 -28.8 -29.5 -30.1 -30.8 -31.4 -34.4
3. Changes in the energy consumption ratio 1.36 1.36 1.34 1.34 1.34 1.34 1.32 1.32 1.31 1.27
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Results the proportion of energy poverty
households by income decile group (Scenario1)

• This study combines the simulation results with
  the detailed information on individual households
  by the microdata.
• The result shows the severe impact on low-income
  households, especially the lowest income decile
  group when energy prices are escalated.

23 to 42
2 to 10
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Results the impact by household type (Scenario 1)

• From the result, motherchild households and
  single-aged households can be categorized as
  vulnerable to the energy price escalation.
• About one-tenth of motherchild and single-aged
  households are in energy poverty
  even in the BaU. The poverty rates are almost
  doubled by the energy price escalation.

11 to 23
12 to 22
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Policy scenario (Scenario 2)
X
According to the results, there are sure signs of
energy poverty in lower income groups, as well
as vulnerable households
IX
VIII
VII
V
VI
IV
III
Scenario 2
II
I
With the policy Subsidizing the energy costs of
low-income households (I II)
Subsidy totaling 500 billion yen (5 billion
dollars)
This policy can be interpreted as a kind of
social tariffs, i.e., it
involves discounted energy prices for low-income
households Social tariffs were introduced in the
UK from 2008 to 2011
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Results the proportion of energy poverty
households by income decile group (Scenario 2)

• The policy offsets the negative impacts of energy
  price escalation.
• The result indicates the effectiveness of the
  policy to counteract the negative
  influence of energy price escalation.

42 to 27
10 to 4
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Results the impact by household type (Scenario 2)

• The policy can also neutralize the negative
  impact of energy prices doubling on the
  vulnerable households.
• This study empirically shows the effectiveness of
  the alleviation policy as well as the amount of
  the budget needed to cancel out the impact.

23 to 14
22 to 14
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Conclusion

• This study investigates
• the impact of energy price escalation on the
  Japanese households
• the effectiveness of countermeasure (social
  tariffs)
• This study empirically shows
• energy price escalation greatly harms Japanese
  households
• especially, low-income and vulnerable households
• the effectiveness of countermeasure
• the budget required to offset the negative
  impacts
• Future research definition of energy poverty
• a number of problems related to the 10 ratio
  measure (e.g., Hills, 2012)
• plural standards may be needed to reflect
  regional differences in the country (e.g.,
  climates or prices)

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Thank you !