Study: energy crisis triggered by Ukraine war may push millions into extreme poverty

Soaring energy prices triggered by the Russia-Ukraine conflict could plunge up to 141 million more people around the world into extreme poverty, a new study reveals, according to the University of Birmingham. Households’ energy costs for heating, cooling, and mobility have increased sharply, while rising energy prices have pushed up the costs of goods and services.

The University of Birmingham has said that households in Sub-Saharan African countries are hardest hit in terms of total energy cost burden rate – additional energy costs in household total expenditure compared to pre-crisis levels.

Understanding how global energy prices are transmitted to households through global supply chains and who is more affected is crucial for effective and equitable policy design, the university said, adding that the energy crisis reminds us that an energy system highly reliant on fossil fuels perpetuates energy security risks, as well as accelerating climate change.

Energy costs are likely to rise by 62.6%-112.9%

Experts predict households’ energy costs are likely to rise by 62.6%-112.9%, contributing to a 2.7%-4.8% hike in household expenditure and cost-of-living pressures that could push between 78 million and 141 million people into extreme poverty.

According to the announcement, an international group of scientists, including experts from the universities of Birmingham, Groningen and Maryland, as well as the Chinese Academy of Sciences, modeled the impact of rising prices on households in 116 countries. Their findings have been published in Nature Energy.

The study analyzes the impact of rising prices on households in 116 countries

The authors call for targeted energy assistance to help vulnerable households during the current crisis, emphasizing that many people will need support to afford necessities, especially food.

Of note, according to data from Europe’s main natural gas exchange Dutch TTF, energy prices started rising in the middle of 2021, reaching EUR 75 just before the start of the Ukraine war in February 2022, compared with EUR 25 per MWh (the average for the past almost ten years) in June 2021.

Over the following 12 months the prices constantly went up, peaking at EUR 340 in August, and then started descending, with the current level just above EUR 50.

Energy system highly reliant on fossil fuels perpetuates energy security risks

One of the authors of the study, Yuli Shan from the University of Birmingham, noted that 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.

“Due to the unequal distribution of income, surging energy prices will affect households in very different ways. Unaffordable costs of energy and other necessities will push vulnerable populations into energy poverty and even extreme poverty,” he said.

Shan noted that this unprecedented global energy crisis reminds us that an energy system highly reliant on fossil fuels perpetuates energy security risks, as well as accelerating climate change.

Households in Sub-Saharan African countries are hardest hit in terms of the total energy cost burden rate

The authors calculated the change in energy cost burden rates – additional energy costs in household total expenditure compared to pre-crisis levels – and found significant variation across and within different countries, determined by household consumption patterns and the fossil fuel dependency of global supply chains.

The experts found that wealthier households tend to have heavier burden rates of energy costs in low-income countries, whereas poorer households tend to have higher rates in high-income countries. Households in Sub-Saharan African countries are hardest hit in terms of the total energy cost burden rate.

Globally, wealthier groups tend to have higher energy costs on goods and services with high value-added, while poorer households tend to spend more on meeting daily needs such as food and direct energy.

Hubacek: for poor countries, living costs undermine their hard-won gains in energy access and poverty alleviation

According to the author Klaus Hubacek, from the University of Groningen, understanding how global energy prices are transmitted to households through global supply chains and who is more affected is crucial for effective and equitable policy design.

“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,” he added.

The study was produced by experts from the University of Birmingham, the University of Groningen, the Chinese Academy of Sciences, the Nanjing University of Aeronautics and Astronautics, the Nanjing University, the University of Chinese Academy of Sciences, North China Electric Power University, and the University of Maryland.