Rising Energy Prices Are Pushing Millions More People Into Poverty

By Felicity Bradstock - Feb 23, 2023

• The combination of a global economic and energy crisis has plunged millions of people into energy poverty, and food and energy prices are expected to keep climbing.
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• A recent study found that between 78 million and 141 million people around the world could be pushed into extreme poverty by rising energy prices.
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• Estimates suggest high energy prices have led to an increase in overall household expenditure of between 2.7% and 4.8%.

The energy and economic crises of 2022 plunged millions into poverty last year, with many people around the world struggling to pay their energy bills and contend with rising consumer costs. While Europe and other parts of the world made it through the winter with enough natural gas to power heating, lighting, and cooking, ongoing energy shortages and rising prices are expected to exacerbate energy poverty over the coming year. 

More and more people worldwide have been experiencing poverty in the face of continually rising energy bills, other high consumer costs, and inflation across several countries. And even more have experienced energy poverty, which means that many households do not have access to essential energy services and products, making them incapable of heating, cooling, and lighting their homes, as well as cooking – activities that are essential for maintaining a decent standard of living and helping to guarantee good health. 

It is thought that 35 million EU citizens, around 8% of the EU population, were unable to keep their homes adequately warm in 2020, a figure that has risen significantly, as energy costs have increased in the wake of the Russian invasion of Ukraine. And, in addition to those that fell into energy poverty last year, even more are expected to be hit hard by the ongoing energy and economic crises this year. A recent study found that around 141 million more people worldwide could be facing extreme poverty due to the rising costs of living. 

Energy costs for households around the globe are estimated to have risen by between 62.6% and 112.9% since the beginning of the Russia-Ukraine conflict. And with no end to the conflict in sight, and with ongoing supply chain disruptions, energy and food prices are expected to continue rising for at least the next two years. Estimates suggest that overall household expenditure increased by between 2.7% and 4.8%. Based on this rise, the study suggests that between 78 and 141 million people could be plunged not only into energy poverty but into extreme poverty. 

Yuli Shan, an author of the study, stated “High energy prices hit household finances in two ways: fuel price rises directly increase household energy bills, while energy inputs needed to produce goods and services push prices up for those products as well, and especially for food, which affects households indirectly.” He added, “Unaffordable costs of energy and other necessities will push vulnerable populations into energy poverty and even extreme poverty.” 

We are seeing rising energy poverty across Europe. In the Netherlands, Statistics Netherlands (CBS) and the Netherlands Organisation for Applied Scientific Research (TNO) mapped energy poverty and found that households living in energy poverty rose by approximately 90,000 from 2020 to 2022, from over 450,000 to more than 540,000. 

In the U.K., energy bills will rise by 40% in April after the government reduces its subsidy scheme. Energy prices in the U.K. increased from an annual average of $1,258 in 2020/21 to $3,019 as of October 2022, meaning that the government’s Energy Price Guarantee may have only partially subsidized household energy cost rises in this period. Research from National Energy Action (NEA) shows that over 6.7 million U.K. households are now living in energy poverty, a figure that has doubled since 2020.

Meanwhile, in Germany, it is thought that around one in four Germans are living in energy poverty, compared to one in six in 2018. This is disproportionately affecting the lower classes, with a lower-middle-class person being around twice as likely to become energy impoverished than around a year ago. While the German government has attempted to alleviate cost pressures on consumers by subsidizing energy for low-income households, as well as reducing the use of natural gas, through energy-saving measures and switching to different fuels, people are still being hit hard by rising consumer prices. 

Now, experts are putting pressure on governments and international bodies to introduce policies focused on the short-term alleviation of the energy cost burden on households and an acceleration of the long-term goal of transitioning to renewable energy. The authors of the study suggested that one of the main drivers for the current energy crisis is the ongoing global reliance on fossil fuels, which has led to energy insecurity due to the dependence on a select few oil- and gas-rich powers. 

Klaus Hubacek, another author of the poverty study, explained “This crisis is worsening energy poverty and extreme poverty worldwide. For poor countries, living costs undermine their hard-won gains in energy access and poverty alleviation. Ensuring access to affordable energy and other necessities is a priority for those countries, but short-term policies addressing the cost-of-living crisis must align with climate mitigation goals and other long-term sustainable development commitments.”

With energy shortages expected to continue throughout 2023, meaning even higher energy costs, exacerbated further by the global economic and cost-of-living crises, we can expect millions more to fall into poverty. To alleviate pressures on the consumer, governments will not only have to introduce policies to subsidize energy through windfall taxes and other schemes in the short term, but they will also have to accelerate the green transition to improve long-term energy security.