Just Transition
Area: Policy and financing
Justice theory is as old as philosophical thought itself, but the contemporary debate often departs from the Rawlsian understanding of justice (Velasquez, Andre, Shanks, & Meyer, 1990). Rawls (1971) argued that societal harmony depends on the extent to which community members believe their political institutions treat them justly. His First Principle of ‘justice as fairness’ relates to equal provision of ‘basic liberties’ to the population. His Second Principle, later referred to as the ‘Difference Principle’, comprises unequal distribution of social and economic goods to the extent that it benefits “the least advantaged” (Rawls, 1971, p. 266).1[1] As this notion added an egalitarian perspective to Rawlsian justice theory, it turned out to be the most controversial element of his work (Estlund, 1996).
The idea of a ‘just transition’ was built on these foundations by McCauley and Heffron (2018), who developed an integrated framework overarching the ‘environmental justice’, ‘climate justice’ and ‘energy justice’ scholarships. The term was first used by trade unions warning for mass redundancies in carbon-intensive industries due to climate policies (Hennebert & Bourque, 2011), but has acquired numerous interpretations since. This is because the major transition of the 21st century, the shift towards a low-carbon society, will be accompanied by large disturbances in the existing social order. In this context, a just transition would ensure equity and justice for those whose livelihoods are most affected (Newell & Mulvaney, 2013). A just transition implies that the ‘least advantaged’ in society are seen, heard, and compensated, which corresponds with three key dimensions conceptualised by Schlosberg (2004): distributive, recognitional, and procedural justice.
Distributive justice corresponds with Rawls’ Difference Principle and comprehends the just allocation of burdens and benefits among stakeholders, ranging from money to risks to capabilities. Recognitional justice is both a condition of justice, as distributive injustice mainly emanates from lacking recognition of different starting positions, as well as a stand-alone component of justice, which includes culturally or symbolically rooted patterns of inequity in representation, interpretation, and communication (Young, 1990). Fraser (1997) stressed the distinction between three forms: cultural domination, nonrecognition (or ‘invisibility’), and disrespect (or ‘stereotyping’). Procedural justice emphasises the importance of engaging various stakeholders – especially the ‘least advantaged’ – in governance, as diversity of perspectives allows for equitable policymaking. Three elements are at the core of this procedural justice (Gillard, Snell, & Bevan, 2017): easily accessible processes, transparent decision-making with possibilities to contest and complete impartiality.
A critique of the just transition discourse is that it preserves an underlying capitalist structure of power imbalance and inequality. Bouzarovski (2022) points to the extensive top- down nature of retrofit programmes such as the Green New Deal, and notes that this may collide with bottom-up forms of housing repair and material intervention. A consensus on the just transition mechanism without debate on its implementation could perpetuate the status quo, and thus neglect ‘diverse knowledges’, ‘plural pathways’ and the ‘inherently political nature of transformations’ (Scoones et al., 2020). However, as Healy and Barry (2017) note, understanding how just transition principles work in practice could benefit the act of ‘equality- proofing’ and ‘democracy-proofing’ decarbonisation decisions.
Essentially, an ‘unjust transition’ in the context of affordable and sustainable housing would refer to low-income households in poorly insulated housing without the means or the autonomy to substantially improve energy efficiency. If fossil fuel prices – either by market forces or regulatory incentives – go up, it aggravates their already difficult financial situation and could even lead to severe health problems (Santamouris et al., 2014). At the same time, grants for renovations and home improvements are poorly targeted and often end up in the hands of higher income ‘free-riding’ households, having regressive distributional impacts across Europe (Schleich, 2019). But even when the strive towards a just transition is omnipresent, practice will come with dilemmas. Von Platten, Mangold, and Mjörnell (2020) argue for instance that while prioritising energy efficiency improvements among low-income households is a commendable policy objective, putting them on ‘the frontline’ of retrofit experiments may also burden them with start-up problems and economic risks.
These challenges only accentuate that shaping a just transition is not an easy task. Therefore, both researchers and policymakers need to enhance their understanding of the social consequences that the transition towards low-carbon housing encompasses. Walker and Day (2012) applied Schlosberg’s dimensions to this context. They conclude that distributive injustice relates to inequality in terms of income, housing and pricing, recognitional justice to unidentified energy needs and vulnerabilities, and procedural injustice to inadequate access to policymaking. Ensuring that the European Renovation Wave is made into a just transition towards affordable and sustainable housing therefore requires an in-depth study into distributive, recognitional and procedural justice. Only then can those intertwining dimensions be addressed in policies.
[1] To illustrate his thesis, he introduces the ‘veil of ignorance’: what if we may redefine the social scheme, but without knowing our own place? Rawls believes that most people, whether from self-interest or not, would envision a society with political rights for all and limited economic and social inequality.
References
Bouzarovski, S. (2022). Just Transitions: A Political Ecology Critique. Antipode. doi:10.1111/anti.12823
Estlund, D. (1996). The Survival of Egalitarian Justice in John Rawls’s Political Liberalism. Journal of Political Philosophy, 4(1), 68-78.
Fraser, N. (1997). Justice interruptus. London: Routledge.
Gillard, R., Snell, C., & Bevan, M. (2017). Advancing an energy justice perspective of fuel poverty: Household vulnerability and domestic retrofit policy in the United Kingdom. Energy Research & Social Science, 29, 53-61. doi:10.1016/j.erss.2017.05.012
Healy, N., & Barry, J. (2017). Politicizing energy justice and energy system transitions: Fossil fuel divestment and a “just transition”. Energy Policy, 108, 451-459. doi:10.1016/j.enpol.2017.06.014
Hennebert, M. A., & Bourque, R. (2011). The International Trade Union Confederation (ITUC): Insights from the Second World Congress. Global Labour Journal, 2(2), 154-159.
McCauley, D., & Heffron, R. (2018). Just transition: Integrating climate, energy and environmental justice. Energy Policy, 119, 1-7. doi:10.1016/j.enpol.2018.04.014
Newell, P., & Mulvaney, D. (2013). The political economy of the ‘just transition’. The Geographical Journal, 179(2), 132-140. doi:10.1111/geoj.12008
Rawls, J. (1971). A Theory of Justice. Cambridge, MA: The Belknap Press of Harvard University Press.
Santamouris, M., Alevizos, S. M., Aslanoglou, L., Mantzios, D., Milonas, P., Sarelli, I., . . . Paravantis, J. A. (2014). Freezing the poor—Indoor environmental quality in low and very low income households during the winter period in Athens. Energy and Buildings, 70, 61-70. doi:10.1016/j.enbuild.2013.11.074
Schleich, J. (2019). Energy efficient technology adoption in low-income households in the European Union – What is the evidence? Energy Policy, 125, 196-206. doi:10.1016/j.enpol.2018.10.061
Schlosberg, D. (2004). Reconceiving Environmental Justice: Global Movements And Political Theories. Environmental Politics, 13(3), 517-540. doi:10.1080/0964401042000229025
Scoones, I., Stirling, A., Abrol, D., Atela, J., Charli-Joseph, L., Eakin, H., . . . Yang, L. (2020). Transformations to sustainability: combining structural, systemic and enabling approaches. Current Opinion in Environmental Sustainability, 42, 65-75. doi:10.1016/j.cosust.2019.12.004
Velasquez, M., Andre, C., Shanks, T. S. J., & Meyer, M. J. (1990). Justice and fairness. Issues in Ethics, 3(2), 1-3.
Von Platten, J., Mangold, M., & Mjörnell, K. (2020). A matter of metrics? How analysing per capita energy use changes the face of energy efficient housing in Sweden and reveals injustices in the energy transition. Energy Research & Social Science, 70. doi:10.1016/j.erss.2020.101807
Walker, G., & Day, R. (2012). Fuel poverty as injustice: Integrating distribution, recognition and procedure in the struggle for affordable warmth. Energy Policy, 49, 69-75. doi:10.1016/j.enpol.2012.01.044
Young, I. M. (1990). Justice and the Politics of Difference. Princeton, NY: Princeton University Press.
Created on 03-06-2022 | Update on 06-06-2022
Related definitions
Housing Governance
Area: Policy and financing
The shift from ‘government’ to ‘governance’ has been debated since the early 1970s. Whilst state interventionism had been widely embraced within western societies during the post-war decades, governments gradually moved from exercising constitutional powers to acting as facilitators and cooperative partners (Rhodes, 1997). Over the course of a few decades, this resulted in governance as ‘interactive social-political forms of governing’ (Nag, 2018, p. 124). Hira and Cohn (2003, p. 12), influenced by Keohane (2002), define governance as “the processes and institutions, both formal and informal, that guide and restrain the collective activities of a group”. Its decentralised and flexible nature could still include public actors but would also leave space for private and third-sector parties to provide services in hybrid and temporary institutional arrangements.
To formulate one single definition of ‘housing governance’ as a particular mode of governance is however difficult due to its multilevel character. Housing could relate to either a family home, a housing association, or a complete local/national housing governance framework. On a household level, Wotschack (2005, p. 2) defines governance as managing “the daily time allocation of spouses by household rules and conflict handling strategies”. The work of Wijburg (2021) indicates that local/municipal governance entails a set of public interventions, strategies, policies and provisions used to provide local needs (e.g. housing supply). On the national level, Yan et al. (2021) define public rental housing (PRH) governance as “a structure of a wide range of government and non-governmental actors that act in all its phases of PRH provision from policy design to implementation and realisation”.[1] This specific definition on PRH combines the domestic definition of governance with Wijburg’s understanding of governance on the local level. Within the Chinese context, the national government provides policies and creates nationwide operational methods, whilst local governments implement and formulate the policies locally (Yan et al., 2021).
Critics point out that a more decentralised governance structure complicates the public accountability of housing provision. Peters and Pierre (2006, p. 40) distinguish problems concerning the ‘isolation’ and ‘enforcement’ of accountability. The former refers to demarcation, as it is easier to measure the performance of a government housing agency directly responsible for new build and operations, than those from the private sector in an indirect role trying to stimulate and facilitate other actors and contracting out construction and operations (Shamsul Haque, 2000). The latter relates to the accountability deficit that arises when responsibility is transferred from democratically governed municipal agencies to actors without a representative institutional arrangement, and thus without control mechanisms for tenants or the wider population (Mullins, 2006).
Throughout history, understanding of governing has evolved together with the role of government. The state plays a different role in capitalism, corporatism and socialism, which has varying effects on local and/or (inter)national levels. Whilst the above paragraphs describe housing governance within a democratic governance regime, transferring the conceptual debate to autocratic or hybrid regimes would pose difficulties. Thus, finding a unique definition of housing governance applicable in all spheres remains a challenge, and the specific context must be carefully considered. Important challenges remain, and as housing provision mechanisms evolve, further exploration of housing governance, especially on a municipal level, are likely to gain importance (Hoekstra, 2020).
[1] “Housing provision is a physical process of creating and transferring a dwelling to its occupiers, its subsequent use and physical reproduction and at the same time, a social process dominated by the economic interests involved” ibid.
Created on 16-02-2022 | Update on 21-02-2022
Read more ->Indoor Thermal Comfort
Area: Design, planning and building
Improving indoor thermal comfort is a widely agreed motivate for housing retrofit (Femenías et al., 2018; Outcault et al., 2022; Sojkova et al., 2019; Zahiri & Elsharkawy, 2018). Low carbon retrofit of existing social housing tends to be driven by cost, the use of eco-friendly products, and energy savings (Sojkova et al., 2019). Energy savings are particularly important in colder climates where households require larger energy loads for space heating and thermal comfort and are therefore at greater risk of fuel (energy) poverty (Sojkova et al., 2019; Zahiri & Elsharkawy, 2018). Femenías et al.’s (2018) extensive literature review on property owners’ attitudes to energy efficiency argues that renovations are typically motivated by other needs, referred to by Outcault et al (2022) as ‘non-energy impacts’ (NEIs). While lists of NEIs are inconsistent in the literature, categories related to “weatherization retrofit” (Outcault et al., 2022, p.3) refer to comfort, modernity, health, safety, education, and better indoor air quality (Amann, 2006; Bergman & Foxon, 2020; Broers et al., 2022; Outcault et al., 2022). In poorly maintained social housing, however, the desire to improve indoor air quality and thermal comfort will have an impact on energy consumption. Occupants will, for example, use extra heating to feel comfortable in a damp, mouldy, or cold home. (Zahiri & Elsharkawy, 2018).
There are three main technical improvements to low carbon retrofit: (1) enhancing the building fabrics thermal properties; (2) improving systems efficiency; and (3) renewable energy integration (Institute for Sustainability & UCL Energy Institute, 2012). In order for the Passivehaus Institut’s EnerPHit Retrofit Plan to meet Passivhaus standards for indoor air quality, homes must achieve high levels of air tightness complemented by a mechanical ventilation system including heat recovery (MVHR). Specifically, “airtightness of a building must achieve an air change per hour rate of less than 0.6 at 50 Pa of pressure (n50), and have ventilation provided by either a balanced mechanical heat recovery ventilation or demand-controlled ventilation systems” (McCarron et al., 2019, p.297). This airtightness concept is revered for saving energy, avoiding structural damage, and contributing to thermal comfort (Bastian et al., 2022) while requiring no natural ventilation such as open windows. Mechanical HVAC units alter indoor air temperature, air movement, ventilation, noise levels, and humidity (Outcault et al., 2022). But despite known benefits to physical health and clean air, this may not lead to optimum user-comfort. This is because social housing residents have unique housing needs that differ from homeowners (Sunikka-Blank et al., 2018) and cannot be predicted without resident engagement, as residents are experts in the way they live and use their homes (Boess, 2022; Gianfrate et al., 2017; Walker et al., 2014).
Post Occupancy Evaluation after retrofit has found that social housing residents are often unfamiliar with mechanical systems and their sustainable benefits, especially when retrofit occurs without resident input (Garnier et al., 2020). This can lead to misuse, overheating, the prebound effect, and the rebound effect where affordable energy bills lead to excessive heating—at times 25-26°C (Zoonnekindt, 2019)—contributing to performance gaps as high as five times the predicted energy consumption (Traynor, 2019). Other households considered mechanical systems to be bulky, ugly, and noisy, prompting removal, lack of use, and at times emotional distress (Lowe et al., 2018). DREEAM’s Berlin pilot site found one household blocking mechanical ventilation with tissue paper because they considered the air too cold and residents “haven’t been informed about the positive impact of a well working ventilation on their health and on the energy efficiency of the heating in their apartment” (Zoonnekindt, 2019). DREEAM continued the project with Green Neighbours (Zoonnekindt, 2019), an innovative engagement program co-designed with and for residents to better inform mechanical systems usage. However, literature shows (Boess, 2022; Gianfrate et al., 2017; Walker et al., 2014) that informing residents on how to use mechanical systems is unlikely to change use-habits or adequately combat performance gaps. In order to change residents’ energy behaviours, resident stakeholders should be integrated in retrofit decision-making.
Created on 20-09-2022 | Update on 01-12-2023
Read more ->Window Guidance
Area: Policy and financing
Window guidance is a credit policy allowing central banks to steer bank lending toward certain economic activities. In the post-war period, it was common for both developed and emerging economies to employ various forms of credit control and allocation. However, these policies were virtually discontinued by the 1980s and the mandate of the central banks was reduced to controlling inflation through interest rates. Housing affordability and sustainability are strongly interlinked with monetary policies, particularly because housing prices and supply rely on debt for financing (Muellbauer, 2018). This link is embodied in inflation-adapted interest rates, which are used by central banks to “cool down” the economy and control prices. Currently, high inflation has pushed central banks all over the world to increase interest rates. Increases in interest rates impact the interbank lending rates such as the Euribor or the Libor and ultimately affect the price of credit in an economy. This then influences in particular capital-intensive industries such as housing development and renovation.
Social housing organisations (SHOs) which provide social -thus affordable- rental housing, particularly in North-Western Europe, are dependent on credit to finance not only the provision of housing, but also the energy-efficient renovation of their stock. The rise in interest rates resulting from central banks’ monetary policy aimed at curbing inflation puts the financial viability of renovation and new construction in jeopardy. This insight is not new, as the dependence on credit for renovation and maintenance was already foreseen as an issue in the late 90s by the British housing economist Christine Whitehead (1999). Traditionally, governments support social housing providers through grants, subsidies and through the guaranteeing of their debt (Lawson, 2013). For example, publicly owned social housing providers in Germany have their debt rated equally to that of their main owners: municipalities and regions. As a result, their financing costs also benefit from a high rating implying low-interest rates for their debt. This is also the case in France and the Netherlands where ultimately it is public institutions that guarantee SHO debt. For instance, a Dutch social housing provider raises debt at a triple AAA rating, that of the Dutch state. This lowers their interest costs in comparison to that of other companies which may be rated lower, hence have a higher risk premium and pay more for their debt (Fernández et al., forthcoming). In an inflationary environment, where interest rates rise across the board, this means higher financing costs for SHOs despite their risk premium remaining constant.
Window guidance is relevant in this context because it would allow central banks to set a lower interest rate for lending to certain activities, thus creating a window. During the period between 1945-1980, advanced and emerging economies alike implemented interventions on credit and capital markets. Central banks would align lending with industries, exports and manufacturing while increasing interest rates for less desirable sectors (Bezemer et al., 2023; Hodgman, 1973). According to Bezemer et al., (2023) based on Hodgman (1973) and Goodhart (1989 pp. 156–158), ‘credit guidance’, ‘credit controls’, ‘credit ceilings’, ‘directed credit’, and ‘moral suasion’ are also common names for these types of policy. More recently, organisations such as Positive Money have been advocating for a sovereign money proposal where banks would obtain funds from their national central bank with limitations on their usage (Youel, 2022). This enhanced control over bank lending opens up the possibility of earmarking private capital for investment in decarbonisation activities. For example, lending for speculative purposes or for highly polluting activities could be curtailed while the financial viability of environmentally friendly activities could be expanded. Ultimately, credit controls offer the possibility to guide credit toward the provision of affordable and sustainable housing and away from sectors such as fossil fuels or speculative bubbles.
Created on 24-04-2023 | Update on 22-05-2023
Read more ->Energy Poverty
Area: Policy and financing
The in-depth study of energy poverty as a social phenomenon commenced in the late 19th century through the works of British social researchers Booth and Rowntree (O’Connor, 2016). This era was characterised by significant social and economic transformation, and these scholars were troubled by the living conditions and welfare of impoverished urban populations, who were residing in congested and unsanitary environments.
Throughout the 20th century, poverty in policy contexts became quite narrowly defined as a lack of income. However, it was another social concern in the UK that led to the development of concepts like ‘fuel poverty’ or ‘energy poverty’ a century after Booth and Rowntree.[i] Following the 1973 oil crisis, the Child Poverty Action Group took the initiative to address how increasing energy costs were affecting low-income households in the UK (Johnson & Rowland, 1976). As essentials like heating, electricity, and fuels became necessary for maintaining a decent standard of living in modern British society, this advocacy group pushed for government financial support. Later, Bradshaw and Hutton (1983) introduced a narrower definition of energy poverty: “the inability to afford adequate heat in the home”. Since then, studies on energy poverty have typically excluded motor fuels, as they fall under transport poverty, a related but separate area of study (Mattioli et al., 2017).
Energy poverty, as defined by Bouzarovski and Petrova (2015, p. 33), refers to "the inability to secure or afford sufficient domestic energy services that allow for participation in society." Although the precise boundaries of relevant domestic energy usage are still debated, this definition expands beyond mere heating as it encompasses energy used for cooling, which is particularly relevant in warmer climates (Thomson et al., 2019). Moreover, it enables a socially and culturally dependent understanding of what it means to participate in society (Middlemiss et al., 2019). On 13 September 2023, the European Union (2023) officially defined energy poverty as “a household’s lack of access to essential energy services, where such services provide basic levels and decent standards of living and health, including adequate heating, hot water, cooling, lighting, and energy to power appliances, in the relevant national context, existing national social policy and other relevant national policies, caused by a combination of factors, including at least non-affordability, insufficient disposable income, high energy expenditure and poor energy efficiency of homes”.
The doctoral thesis and subsequent book by Brenda Boardman, Fuel Poverty: From Cold Homes to Affordable Warmth (1991), marked a significant breakthrough in energy poverty research. She emphasised the detrimental impact of energy-inefficient housing on health and quality of life. In the decades that followed, substantial literature confirmed her qualitative findings (Thomson et al., 2017). Notably, studies have demonstrated the adverse effects of living in energy poverty on physical health (Liddell & Morris, 2010), mental health (Liddell & Guiney, 2015), stress levels (Longhurst & Hargreaves, 2019), social isolation (Harrington et al., 2005), and absenteeism (Howden-Chapman et al., 2007).
Boardman’s work introduced an indicator that has remained influential to this date, although it was not the first attempt to operationalise the concept of fuel poverty (Isherwood & Hancock, 1979). Her ‘2M’ indicator categorises a household as energy poor if it needs to allocate twice the median share of its budget for energy expenses to heat its home adequately. Boardman calculated this threshold to be 10% at that time. Due to its simplicity and ease of comprehension, many governments directly adopted this 10% threshold without considering specific contextual circumstances. Since the early nineties, numerous attempts have been made to develop alternative indicators. Highly influential ones include ‘Low Income High Cost’ (LIHC) by John Hills (2012), ‘Low Income Low Energy Efficiency’ (LILEE) that subsequently became the official British indicator (BEIS, 2022), and a 'hidden' energy poverty indicator by (Meyer et al., 2018). Critiques of these indicators focus, amongst other things, on their simplicity and perceived 'technocratic' approach (Croon et al., 2023; Middlemiss, 2017).
This marked the beginning of significant government commitment, initially in the UK and later in other countries to address energy poverty. Although certain forms of cold weather payments had already been introduced by the UK's Conservative administrations, it was under the successive governments of Blair and Brown, following the publication of Boardman's work, that programmes such as the Winter Fuel Payment and Warm Home Discount were implemented (Koh et al., 2012). The UK examples highlight bipartisan support for addressing energy poverty, with both the Conservatives and Labour backing these efforts. This policy objective has also gained momentum in various legislative contexts, leading the EU to incorporate energy poverty alleviation as a fundamental pillar of the European Green Deal and a specific goal of its landmark Social Climate Fund (European Commission, 2021).
Over the last three decades, public interest in energy poverty as a 'wicked' problem has surged, particularly during the recent energy crisis. This crisis began in 2021 when energy markets tightened due to a post-pandemic economic rebound, and it worsened dramatically after Russia's invasion of Ukraine in February 2022 (IEA, 2023). Extensive research on the impact of this price surge on energy poverty levels has been carried out throughout Europe and globally (Guan et al., 2023; Simshauser, 2023). Consequently, energy poverty has become a significant focal point in discussions related to the 'just transition,' especially within the realm of energy justice, as it serves as a valuable concept for targeting policies towards a specific vulnerable group in this context (Carrosio & De Vidovich, 2023).
[i] ‘Fuel poverty' and 'energy poverty' are used interchangeably, with the former being more common in the UK and the latter in mainland Europe (Bouzarovski & Petrova, 2015). Previously, scholars in the UK used 'energy poverty' to denote a lack of access to energy and 'fuel poverty' when affordability was the concern (Li et al., 2014). However, this distinction is no longer maintained.
Created on 17-10-2023 | Update on 06-11-2023
Read more ->Targeted universalism
Area: Policy and financing
The scholarly discourse on targeting versus universalism in social protection has significantly influenced the evolution of global welfare states over the past century and a half. Recently, surging energy prices across Europe have reignited the debate over choosing between universal household support or targeted relief, mirroring a similar discussion on the trade-offs between efficiency and equity in providing renovation subsidies. This vocabulary entry delves into the advantages and disadvantages of each approach, while exploring various attempts to find middle ground between the two (e.g., ‘targeted universalism’), particularly in the context of affordable and sustainable housing.
Historic context
In the 1880s, Germany established one of the earliest forms of the modern welfare state with its Bismarckian system (Manow, 2020). It introduced social insurance programmes to address workers' issues such as healthcare, insurance, and pensions for the elderly. While revolutionary for its time, the system was modest in scope and initially limited to workers and their dependents. In the decades that followed, social welfare programmes across Western Europe expanded to cover a wider range of risks, gradually incorporating non-working populations into social protection schemes. The Great Depression catalysed the recognition of the state's crucial role in social welfare, a stance prominently advocated by economists such as Keynes. Following WWII, there was a widespread consensus on the importance of improving working-class living conditions to avert future disasters.
The Beveridge Report, authored by Sir William Beveridge (1942), played a crucial role in reshaping the British welfare state and influencing welfare policies worldwide. It proposed an expansive social security system with universal coverage in areas like health and unemployment insurance. Many of the Beveridge Report's recommendations were implemented in the UK and significantly shaped the post-war social landscape after WWII under the government of Clement Attlee (Reeves & McIvor, 2014). Although the Report appeared to favour universalism, it did incorporate means-tested elements for specific benefits, creating a nuanced approach that combined universalism with targeted support to address poverty and meet specific needs. In the latter half of the 20th century, the evolution of different welfare states led to varying housing outcomes. The UK's liberal regime shifted to a more targeted dualist rental system with an increasing focus on homeownership, in contrast to corporatist and particularly social democratic regimes with a unitary rental system that aligned more with universalism (Esping-Andersen, 1990; Kemeny, 2001).
Interestingly, housing presented a unique challenge in Beveridge's pursuit of universalism. He dedicated nine pages to the 'problem of rent', acknowledging significant geographical variations in rent levels while recognising that they were often not a matter of choice (Lund et al., 2021). Beveridge considered covering actual rent costs but realised this conflicted with his principle of flat-rate benefits. His solution was to recommend a national average rent allowance, differing only for working and pensioner households. Given the rent disparities, larger families' higher rent needs, and poor housing conditions, Beveridge's plan risked falling short of providing universal subsistence. To address this, he suggested post-war housing improvements in later publications (Beveridge, 1949, 1952), including increased supply and better quality of housing in order to reduce rent disparities across the UK. He advocated for the creation of New Towns and incentivising voluntary housing associations, hoping that enhancing housing quality would lead to improvements in relative affordability.
Advantages and disadvantages of approaches
Beveridge’s ‘problem of rent’ mirrors a core dilemma central to the debate on universalism and targeting. While a universal approach aims for inclusivity by covering all households, ensuring that no one is left out, the support offered in a universal system may not be as substantial as in a targeted approach. This could potentially fall short of providing adequate relief to those with the most significant needs.
The universalist approach offers numerous advantages (Thompson & Hoggett, 1996). It not only promises inclusivity but also enjoys greater public acceptance. Furthermore, its simplicity in administration streamlines implementation and reduces administrative complexities. By eliminating the need for means testing or eligibility criteria, it simplifies the delivery of benefits. However, universalism also comes with its share of drawbacks. The cost implications of providing benefits universally can be substantial, potentially straining government budgets, without necessarily providing sufficient support to those in need. Additionally, responding to crises and price shocks with universal support, often referred to as ‘helicopter money,’ can cause substantial inflationary pressure. In the context of affordable and sustainable housing, there is a particular disadvantage to this approach. Universal energy subsidies may diminish the incentive for high-income homeowners, who typically spend the most on energy, to reduce consumption or invest in energy efficiency (Lausberg & Croon, 2023). Simultaneously, low-income households in energy-inefficient dwellings may hesitate to use heating due to leakages and financial concerns (Betto et al., 2020), potentially making them ineligible for support.
In his influential essay on the ‘Political Economy of Targeting’, Amartya Sen (1998) describes the pros and cons of targeting. A major benefit is cost-effectiveness, directing resources efficiently to the most vulnerable and ensuring maximum impact for the targeted groups. However, the approach is impaired by potential exclusion errors, wherein genuinely disadvantaged households might be overlooked due to stringent eligibility criteria. Additionally, the stigma associated with being a beneficiary can lead to negative social consequences. Furthermore, the administrative complexity involved in identifying and reaching the right households is a significant hurdle, requiring comprehensive and accurate systems. This final complication is especially evident in the government's response to the energy crisis in Europe, as policymakers have cited a shortage of data, time constraints, and rigid social compensation mechanisms to explain why they could not effectively assist those who are most vulnerable (Natili & Visconti, 2023).
Finding middle ground
Universal and targeted approaches coexist in most social welfare systems (Jacques & Noël, 2021). Many European countries have implemented a universally accessible pension system, ensuring entitlement to benefits for everyone of a certain age, supplemented by targeted support for elderly individuals lacking private income. Moreover, several European countries approach housing renovation in a comparable manner, offering general subsidies to all residents while also implementing means-tested subsidies for households considered vulnerable.
Another branch of public policy emphasises ‘targeted universalism,’ focusing on designing support policies and interventions that prioritise and address the specific needs of disadvantaged households while still providing benefits to everyone (Powell et al., 2019). In other words, these policies are available to all but particularly important to some. One example would be the reduction in the cost of public transport, a service that is available to everyone but predominantly used by households with lower incomes. Other examples include childcare subsidies and job training programmes, which are particularly beneficial for low-income families struggling to access quality childcare and for disadvantaged individuals looking to improve their job prospects, respectively (Coote & Percy, 2020).
While the European Commission places a strong emphasis on targeting in its criteria for funding from the Social Climate Fund (SCF), Member States could consider strategies to implement policies that embody the principles of targeted universalism. For instance, in many Western European countries, a potential approach could involve prioritising the renovation of social housing. Given that energy poverty is prevalent among social tenants in these housing regimes, it would be logical to extend financial support or fiscal incentives to their landlords, such as tax deductibility of renovation costs or government guarantees for low-interest loans (Seebauer et al., 2019).
On the other hand, the majority of energy poor households in the Mediterranean and Eastern Europe own their homes. In this context, an effective strategy that combines targeted and universalistic elements would entail investing in ‘one-stop-shops’ that offer comprehensive renovation services (Bertoldi et al., 2021). These establishments would provide bundled services such as energy audits, renovation works, and financing. By leveraging economies of scale and specialised expertise, they can effectively reduce costs and offer affordable renovation solutions to disadvantaged groups. Although one-stop-shops are accessible to all, they can be targeted at households experiencing specific information deficits, such as those confronted with language barriers, digital illiteracy, or limited expertise within their social networks. The EU explicitly states that Member States can use the SCF for “targeted, accessible and affordable information, education, awareness and advice on cost-effective measures and investments, available support for building renovations and energy efficiency” (European Parliament, 2023, p. 16)
Created on 03-02-2024 | Update on 05-02-2024
Read more ->Related case studies
Targeting and Policy Efficiency: Exploring the Intended Reform of the Warm Home Discount
Created on 03-04-2023
While gas prices in Europe have surged since the war in Ukraine started, price volatility was already high before the Russian invasion (Statista, 2022). Furthermore, it is to expected that the low-carbon transition will cause more temporary peaks in residential energy prices (Shi & Shen, 2021). This raises the importance for governments to mitigate the effects on households at risk of fuel poverty, most notably low-income households in poorly insulated homes. There are typically three policy angles (Simshauser, 2021): tariff design, retrofit programmes to improve energy efficiency, and targeted income support or subsidies. This case study explores an innovative proposal within the latter category.
Target efficiency of policy
In the last decades, governments have moved from universal to more targeted social welfare policies, aiming to ensure their redistributive character in times of austerity (Ortiz & Cummins, 2020). Targeted support is especially important in the context of residential energy affordability because generic measures could reduce the willingness of high-income homeowners to retrofit their homes, and therefore represent perverse incentives. However, targeted policies are by nature imperfect, as it requires balancing between ‘E-mistakes’ (also called ‘leakage’) in which compensation is given to non-targeted groups, and ‘F-mistakes’ (also called ‘under-coverage’) in which part of the targeted group is not given compensation (Cornia & Stewart, 1993). The former is reflected by ‘vertical target efficiency’, the extent to which beneficiaries need compensation, and the latter by ‘horizontal target efficiency’, the extent to which those deemed to need the compensation receive it (Weisbrod, 1972). Moreover, targeting could be problematic when it induces informational distortion, incentive distortion, stigmatisation or significant administrative losses (Sen, 1998).
Warm Home Discount Reform
In addition to existing income support policies, such as the Cold Weather Payment and the Winter Fuel Payment, the Brittish government introduced the Warm Home Discount (WHD) for England and Wales in 2011. It has offered rebates of up to £140 on annual electricity and gas bills for specific groups: households in receipt of Pension Credit Guarantee form the ‘core group’ and households on various working age benefits the ‘broader group’ (DECC, 2011). While the core group receives the rebate automatically, the broader group must apply for the scheme (with a first-come first-served basis and a total spending envelope of around £350 million) to their energy supplier. In practice, this means that a large share of the eligible group does not know about its entitlement or is refused by suppliers because their spending cap is already exceeded. In addition, the WHD has ever since its announcement been criticised for not reaching all fuel poor households (Consumer Focus, 2011).
In response to this criticism, the Department of Business, Energy and Industrial Strategy (BEIS) published a consultation document for reform of the WHD (BEIS, 2021). It wants to improve targeting of fuel poor households, automate all rebate payments, and reach more households by raising the spending envelope to £475 million. The proposal to improve and automate targeting is innovative in its current shape: BEIS wants to combine data from public and private organisations to identify households on low incomes living in substandard housing or dealing with high energy costs. It would therefore be the first social welfare benefit that is automatically provided based on a prediction of low energy efficiency, using specific housing characteristics such as floor area, property age and property type as proxies.
Narrow focus on vertical efficiency
However, in its substantiation of the reform, BEIS seems to interpret target efficiency simply as vertical efficiency, which leads to a neglect of horizontal efficiency effects.
BEIS modelling suggests that with the current scheme around 37% of WHD recipients are fuel poor, while the reform would increase this number to 47% of recipients. This reflects the vertical efficiency of the reform, as there would only be 53% ‘leakage’ to the non-targeted group rather than 63%. But arguably of greater importance is the horizontal efficiency, the question what proportion of all fuel poor households in England and Wales would be reached. This percentage remains unknown, leaving the public guessing how much ‘under-coverage’ there would be under the proposed reform. Given the stringent WHD eligibility criteria, my hypothesis would be that under-coverage is high. However, further research is needed to find out whether this is indeed the case, and to explore how setting a different threshold could improve the horizontal efficiency of a future reform.
Furthermore, BEIS could think about using a broader understanding of vertical efficiency, not just considering the incidence of fuel poverty, but also the severity on a household level. BEIS now only modelled the proportion of fuel poverty (P0) and not the poverty gap (P1). However, poverty is not a binary phenomenon and should thus not be treated as such. When Hills (2012) was commissioned by the Brittish government to enhance fuel poverty statistics, he introduced the ‘fuel poverty gap’ as an enrichment of the proportion, and envisioned it to be the main driver of policy design. BEIS’ approach in the consultation document demonstrates that this vision has not materialised. Further research could explore whether spending the same amount on a ‘percentage of the utility bill’ rather than a standard discount could lower the fuel poverty gap, as Simshauser (2021) showed for Australian targeted support mechanisms.
The Social Climate Fund: Materialising Just Transition Principles?
Created on 11-07-2023
The EU's Social Climate Fund (SCF) was officially approved by the European Parliament on 18 April 2023 as part of the broader Green Deal initiative, which seeks to expand the scope of the Emission Trading Scheme (ETS) to encompass buildings, transport and other sectors. This extension of the ETS is expected to result in increased energy costs and gasoline prices for households and businesses. To assist vulnerable households, micro-enterprises, and transport users in mitigating the financial impact of these price increases, EU Member States may use resources from the SCF to finance various measures and investments. The SCF will primarily be funded through the revenues generated by the new emissions trading system, with a maximum allocation of €65 bn, which will be supplemented by national contributions. Temporarily established for the period of 2026-2032, the fund aims to provide support during this specified timeframe.
Preliminary Exploration of Merits and Limitations
The initiation of the SCF has received praise from various NGOs advocating for a just transition (WWF, 2022). Supporters highlight its significance in integrating a social dimension into EU climate policies, despite some remaining weaknesses. The SCF’s spending rules are commended for striking a suitable balance between financing structural investments and providing temporary direct income support to vulnerable households. Through the SCF, Member States can finance subsidies that will enable these households to renovate their homes, adopt energy-efficient technologies, and access renewable energy and sustainable transportation. Moreover, various NGOs welcome the requirement for government consultation with subnational administrations and civil society organizations. This could potentially facilitate greater engagement of the target groups in the legislative process. Notably, the SCF also introduces a definition of transport poverty, marking a first in EU policy, and aiding member states to identify those eligible for support (thereby improving recognitional justice).
Regarding the aforementioned weaknesses, there is a range of concerns. Firstly, the projected timeline may pose a limitation. Initiating green investments for vulnerable households only a year before the introduction of carbon pricing may not allow sufficient time for the desired impact. Projects related to energy renovation and improved public mobility infrastructure typically require several years to yield tangible results. Additionally, while Member States are required to include consultation with various stakeholders in their national ‘Social Climate Plans’ (SCPs), the level of participation outlined in the proposed regulation is minimalistic, raising concerns about ensuring procedural justice.
Perceived Importance of Targeting
The legislative text (EU, 2023) underscores the significance of consistent targeting, and Member States are required to furnish comprehensive information regarding the objective of the measure or investment and the specific individuals or groups it aims to address. Additionally, the European Commission expects an elucidation of how the measure or investment will effectively contribute to the accomplishment of the Fund's objectives and its potential to reduce dependence on fossil fuels.
Targeting is deemed particularly crucial with regard to direct income support, as universal energy support tends to generate inflationary pressures, encourage unsustainable behaviour, and yield regressive effects. The legislative text states that is crucial to perceive such support as a temporary measure accompanying the decarbonisation of the housing and transport sectors, rather than a permanent solution that fails to address the fundamental causes of energy poverty and transport poverty. Thus, this support should exclusively target the direct consequences of including greenhouse gas emissions from buildings and road transport under the purview of Directive 2003/87/EC, without encompassing electricity or heating costs related to power and heat production covered by the same directive. As stated, "recipients of direct income support should be targeted, as members of a general group of recipients, by measures and investments aimed at effectively lifting those recipients out of energy poverty and transport poverty" (EU, 2023: p.4).
The share of the SCF designated for renovation projects should also be specifically directed at the vulnerable households and transport users who are already receiving direct income support. SCPs are allowed to extend support to both public and private entities, including social housing providers and public-private cooperatives, in developing and providing affordable energy efficiency solutions and suitable funding mechanisms that align with the social objectives of the Fund. This support could include ‘financial assistance’ or even ‘fiscal incentives’, which poses the question of how lenient should the approach of the European Commission be towards the state support of social housing organisations, given the tensions that have emerged in the past (Gruis & Elsinga, 2014).
Ex Ante and Ex Post Assessment of Social Climate Plans
EU Member States are required to submit national Social Climate Plans (SCPs) no later than 30 June 2025, so that they can be given “careful and timely consideration”. The plans should encompass an investment component that promotes the long-term solution of reducing reliance on fossil fuels, potentially incorporating additional measures, such as temporary direct income support, to alleviate any immediate adverse effects on income.
The primary objectives of these plans must be twofold. Firstly, they should provide vulnerable households, vulnerable micro-enterprises, and vulnerable transport users with the necessary resources to enable them to finance and undertake investments in energy efficiency, the decarbonisation of heating and cooling systems, the adoption of zero- and low-emission vehicles, and sustainable mobility. This support may be provided through mechanisms such as vouchers, subsidies, or zero-interest loans. Secondly, the plans should mitigate the impact of rising fossil fuel costs on the most vulnerable segments of society, thus fighting energy poverty and transport poverty during the transitional phase until the aforementioned investments have been implemented.
The legislative text contains comprehensive information concerning the criteria utilised to assess the SCPs upon submission and evaluation after implementation. The set of ‘result indicators’ that are specifically relevant to the 'building sector' can be found in the table accompanying this case study. Time will tell whether this framework is sufficient to ensure that besides ‘recognitional justice’ and ‘procedural justice’, the SCF will make sure that the European Green Deal delivers ‘distributive justice’.
ESG finance and social housing decarbonisation
Created on 05-02-2024
Over the last decades, ESG debt issuance, through green, social or sustainability-linked loans and bonds has become increasingly common. Financial markets have hailed the adoption of ESG indicators as a tool to align capital investments with environmental and social goals, such as the decarbonisation of the social housing stock. According to the Climate Bonds Initiative (CBI), the green debt market has experienced a 50% growth over the last five years (CBI, 2021). However, the lack of clearly established indicators and objectives has tainted the growth of green finance with a series of high-level scandals and accusations of green-washing, unjustified claims of a company’s green credentials. For example, a fraud investigation by German prosecutors into Deutsche Bank’s asset manager, DWS, has found that ESG factors were not taken into account in a large number of investments despite this being stated in the fund’s prospectus (Reuters, 2022).
To curb greenwashing and improve transparency and accountability in green investments, the EU has embarked on an ambitious legislative agenda. This includes the first classification of environmentally sustainable economic activities: the EU Green Taxonomy (Regulation 2020/852). The Taxonomy is directly linked to the European Commission’s decarbonisation strategy, the Renovation Wave (COM (2020) 662), which relies on a combination of private and public finance to secure the investment needed for the decarbonisation of social housing.
Energy efficiency targets have become increasingly stringent as the Energy Performance of Buildings Directive (EPBD) and its successive recasts (COM(2021)) have been incorporated into national legislation; see for example the French Loi Climate et Resilience (2021-1104, 2021). Consequently, capital expenses for SHOs are set to increase considerably. For example, in the Netherlands, according to a Housing Europe (2020) report, attaining the 2035 energy efficiency targets set by the Dutch government will cost €116bn.
Sustainable finance legislation constitutes an expansion of the financial measures implemented by the EU in recent decades to incentivise energy efficiency standards as well as renovations in the built environment. For more detail on prior EU policies, see Economidou et al. (2020) and Bertoldi et al. (2021). The increased connections between finance and energy performance raise specific questions regarding SHOs’ access to capital markets in light of the shift toward ESG.
The rapidly expanding finance literature on green bonds draws from econometric models to explore the links between investors’ preferences and yields (Fama & French, 2007). This body of literature on asset pricing relies on the introduction of non-pecuniary preferences in investors’ utility functions together with returns and risks to explain fluctuations in the equilibrium price of capital. Drawing from a comparison between green and conventional bonds, Hachenberg and Schiereck (2018) find evidence of the former being priced at a premium. Similarly, Zerbib (2019) also shows a low but significant negative yield premium for green bonds resulting from both investors’ environmental preferences and lower risk levels. The European Commission’s Joint Research Centre (Fatica & Panzica, 2021) documents the dependency of premiums on the issuer with significant estimates for supranational institutions and corporations, but not for financial institutions. While these econometric approaches offer relevant insight into the pricing of green bonds and the incentives for issuers and investors, they do not account for the institutional particularities of social housing, a highly regulated sector usually covered by varying forms of state guarantees and subsidisation (Lawson, 2013).
ESG-labelled debt instruments & Related Legislation
Throughout the last two decades, the term ESG finance has evolved to include a large number of financial vehicles of which green bonds have become the most popular (Cortellini & Panetta, 2021). In the social housing sector, ESG comprises a broad array of tools from sustainability-linked loans to less conventional forms of finance such as carbon credits. When it comes to bonds, there is a wide variation in the sustainability credentials among the different types. Broadly speaking, green and social bonds are issued under specific ‘use of proceeds’, which means the funds raised must be used to finance projects producing clear environmental or social benefits. The issuance of these types of bonds requires a sustainable finance framework, which is usually assessed by a third party emitting an opinion on its robustness.
Sustainability-linked bonds (SLBs) are an alternative to ‘use of proceeds’. Funds raised in this manner are not earmarked for sustainable projects, but can be used for general purposes. SLBs are linked to the attainment of certain company-wide Key Performance Indicators (KPIs), for example an average Energy Performance Certificate (EPC) rating of “C” in an SHO’s housing stock. These indicators and objectives usually result in a price premium for Sustainable Bonds, or a rebate in interest rates in the case of SLBs or sustainability-linked loans (SLLs) (Cortellini & Panetta, 2021).
While there are international standards for the categorisation of green projects such as the Green Bond Principle or the Climate Bonds Strategy, strict adherence is optional and there are few legally-binding requirements resulting in a large divergence in reporting practices and external auditing. To solve these issues and prevent greenwashing, the EU has been the first regulator to embark on the formulation of a legal framework for green finance through a series of acts targeting the labelling of economic activities, investors, corporations and financial vehicles.
First, the EU Green Taxonomy (Regulation (EU) 2020/852) is the cornerstone of this new legislation since it classifies economic activities attending to their alignment with the objectives set in the European Green Deal (EGD). When it comes to housing, the EU Taxonomy requires specific energy efficiency levels for a project to be deemed ‘taxonomy aligned’. Second, the Sustainable Finance Disclosure Regulation (SFDR) (Regulation (EU) 2019/2088) mandates ESG reporting on funds, which tend to consist of exchange-traded collections of real assets, bonds or stocks. Funds are required to self-classify under article 6 with no sustainability scope, ‘light green’ article 8 which incorporates some sustainability elements, and article 9 ‘dark green’ for funds only investing in sustainability objectives. Under the SFDR, which came into effect in January 2023, fund managers are required to report the proportion of energy inefficient real estate assets as calculated by a specific formula taking into account the proportion of ‘nearly zero-energy building’, ‘primary energy demand’ and ‘energy performance certificate’ (Conrads, 2022). Third, the Corporate Sustainability Reporting Directive (CSRD)(COM(2021) 189) increases disclosure requirements for corporations along Taxonomy lines. This legislation, which came into effect in 2023, will be progressively rolled out starting from larger and listed companies and expanding to a majority of companies this decade. Provisions have been made for charities and non-profits to be exempt. However, one of the key consequences of disclosure requirements over funds through the SFDR is its waterfall effect; that is the imposition of indirect reporting requirements as investors pass-on their reporting responsibilities to their borrowers. Fourth, the proposed EU Green Bonds Standards (EU-GBS) COM(2021) 391 aims to gear bond proceedings toward Taxonomy-aligned projects and increase transparency through detailed reporting and external reviewing by auditors certified by the European Security Markets Authorities (ESMA). The main objectives of these legislative changes is to create additionality, that is, steer new finance into green activities (see Figure 1).
While this new legislation is poised to increase accountability and transparency, it also aims to encourage a better management of environmental risks. According to a recent report on banking supervision by the European Central Bank (ECB), real estate is one of the major sources of risk exposure for the financial sector (ECB, 2022). This includes both physical risks, those resulting from flooding or drought and, more relevant in this case, transitional risks, that is those derived from changes in legislation such as the EPBD and transposing national legislation. The ECB points to the need for a better understanding of risk transmission channels from real estate portfolios into the financial sector through enhanced data collection and better assessments of energy efficiency, renovation costs and investing capacity. At its most extreme, non-compliance with EU regulations could result in premature devaluation and stranded assets (ECB, 2022).
In short, the introduction of reporting and oversight mechanisms connects legislation on housing’s built fabric, namely the EPBD, to financial circuits. On the one hand, the EU has been strengthening its requirements vis-à-vis energy efficiency over the last decades. The Energy Efficiency Directive (EED) suggested the introduction of Minimum Energy Performance Standards (MEPS) by Member States (Economidou et al., 2020), a rationale followed by France and the Netherlands for certain segments of the housing stock. Currently, policy-makers are debating on whether the EPBD’s recast (COM/2021/802) should incorporate MEPS and make decarbonisation an obligation for SHOs across the EU. On the other hand, legislation on green finance aims to produce incentives and oversight over investments in energy efficient renovation and new build, mobilising the private sector to cater to green projects (Renovation Wave (COM(2020) 662)).
