ENERGY POVERTY IN JAPAN: HOW DOES THE ENERGY PRICE ESCALATION AFFECT LOW INCOME AND VULNERABLE HOUSEHOLDS?
Shinichiro Okushima,
Associate Professor, Graduate School of Systems and Information Engineering,
University of Tsukuba, Japan,
Azusa Okagawa,
Researcher, Center for Social and Environmental Systems Research,
National Institute for Environmental Studies, Japan,
Overview
There is increasing concern about energy poverty in Japan, pushed by the coming, long-running escalation of energy prices. After the Fukushima nuclear plant disaster, nuclear power plants in Japan have hardly been in operation. Then, Japan becomes more dependent on fossil fuel imports, especially LNG, in terms of electricity generation. Additionally, the government plans to encourage renewable energy production by the measures such as a feed-in tariff scheme. These lead to the increase in energy costs, and the energy prices for consumers will be surging henceforth. On the other hand, reflecting Japan’s aging and sluggish economy, the share of low income households is steadily increasing. Among them, lone parent with dependent child(ren), elderly, or/and single-person households are much vulnerable to rising living costs including energy expenses. In our research, there are early and sure signs of energy poverty in lower income groups. It is highly possible to require some countermeasures against energy poverty in the near future.
Methodology
For the analysis on energy poverty in Japan, this study uses both an applied general equilibrium model and microdata on the Japanese economy. First, the study develops an applied/computable general equilibrium model with multi-households characterized by their income levels to assess the effects of energy price escalation on households. The model is based on Okagawa and Ban (2008) and Okushima (2003), and composed of 10 households, 40 industrial sectors, a government and 48 commodities, nine of which are fossil fuels. The model’s parameters are calibrated to the 2005 base year SAM (social accounting matrix) whose data sources are 2005 Input-Output Tables, Family Income and Expenditure Survey, and so on. Next, the study also uses microdata for the Japanese households. The data is based on National Survey of Family Income and Expenditure 2004, and the number of samples is about 50,000 households covering the whole of Japan. To perform a full-fledged analysis on the energy poverty problem, this research links the simulation results given by the general equilibrium model to detailed information on individual households provided by the microdata.
Results
This study defines energy poverty in terms of energy budget shares of households (Pachauri et al., 2004). In other words, it defines energy poverty households as the ones who spend more than 10% of their income on energy expenses i.e. electricity, gas and heating oil, referred to the UK government definition (Department of Energy and Climate Change, 2012). The figure shows the proportion of energy poverty households in Japan by income decile group. In the base case (BaU), 23% of the households in the lowest income decile group, and 2% in the second lowest, are here categorized as energy poverty. The study evaluates the change of energy poverty households when energy prices are totally doubled. In the Figure, the result illustrates that the proportion of energy poverty households in the lowest income decile group increases from 23% in the base case to 41%, and that from 2% to 10% in the second lowest. This clearly shows the severe impact of energy price hikes on low income households. Therefore, the study considers an alleviation measure totalling 500 billion yen, which subsidizes the energy costs of low income households (here, I and II). The measure is also interpreted as a kind of social tariffs, namely the discounted energy prices for low income households. The figure indicates that the proportion of households in energy poverty decreases from 41% to 26% in the lowest income decile group, and that from 10% to 4% in the second lowest in the “with policy” case. In the research, the same kinds of analysis are given with regard to the vulnerable households (lone parent with dependent child(ren), elderly, or/and single-person households), as another study of our research project (Tanaka, 2013) econometrically shows the solid relationship between energy poverty and household’s vulnerabilities. From the poverty and distributive perspectives, such countermeasures will be necessary when energy prices soar in the future. The result quantitatively demonstrates these effects.
Conclusions
This study evaluates the impact of energy price hikes on the Japanese economy and households. It uses both a general equilibrium model and microdata to perform the full-fledged analysis focusing on low income and vulnerable households. The study concludes that energy price escalation deeply damages low income and vulnerable households and some alleviation measures deserve to be implemented when energy prices dramatically go up in the future. We hope this study will provide some guidelines for the future policy to tackle the problem in Japan and other developed countries.
References
Department of Energy and Climate Change (2012) “Annual Report on Fuel Poverty Statistics 2012,” Department of Energy and Climate Change, Government of UK.
Okagawa, A., Ban, K. (2008), “A CGE Analysis on the Effect of CO2 Abatement Policies with Assistance Programs to Carbon-intensive Industries,” Planning Administration, 31(2), pp. 72-78 (in Japanese).
Okushima, S. (2003). “Global Warming Policy and Distributional Effects: A General Equilibrium Analysis,” The 9th International Conference on Computing in Economics and Finance, University of Washington.
Pachauri, S., Mueller, A., Kemmler, A., and Spreng, D. (2004). “On Measuring Energy Poverty in Indian Households,” World Development, 32(12), pp. 2083-2104.
Tanaka, S. (2013), “Energy Poverty in Japan: Current Situation and Future Prospects,” Master Thesis, Graduate School of Systems and Information Engineering, University of Tsukuba (in Japanese).