Fuel for poverty: A model for the relationship between income and fuel poverty. Evidence from Irish microdata

A new approach rooted in economic theory is proposed to analyse the relationship between fuel poverty and income poverty using self-reported data. The model shows that neglecting the overlap between income and fuel poverty underestimates the metrics for the change in income poverty due to increases in carbon taxes. The model is parametrized using econometric methods. Being a single adult with dependent children, having low education levels, low income levels and having darkness or dampness in the dwelling increases the probability of being fuel poor. The estimates show that an 1% increase in carbon taxes will raise the number of people experiencing fuel poverty by 0.5%. It is also shown that while increases in lump-sum transfers are progressive, increases in energy prices and energy required to heat a dwelling are regressive. Among poor households, fuel poor households have the lowest income levels, have issues with dampness, and it is less likely that they have double glazing in their dwellings compared to other income poor households. Income and fuel poverty are two distinctive problems that require different policy instruments. Policies need to address income and energy efficiency inequalities simultaneously to counteract the regressive effect of carbon taxes in Ireland.