Up to 140 million extra people could be tipped into extreme poverty worldwide by an energy crisis that has sent prices soaring more than 100 per cent for many households, a new report has revealed.
Key points:
- Report finds total household energy costs have risen between 62 per cent 113 per cent globally in a year
- Direct energy costs accounted for less than a third of the increase, with indirect expenses a bigger influence
- Authors find crisis could tip an extra 141 million people across the world into extreme energy poverty
Markets for coal, gas and oil were thrown into turmoil last February when Russia launched its full-scale invasion of Ukraine.
It sent energy prices into orbit and smashed consumers already dealing with the worst inflation outbreak in decades.
A report published today in the journal Nature Energy has quantified the cost of the crisis to households around the world, finding that total energy expenses on average shot up between 62 per cent and 113 per cent.
The report's authors, who hailed from universities across Asia, Europe and the United States, noted the jump in energy costs had inflated household spending by up to 4.8 per cent on average.
For many poorer countries, the rate of increase was much higher.
They said the increase could push between 78 million and 141 million extra people into extreme poverty and called on governments to provide targeted help to those hardest hit.
Pain felt 'around the world'
Hundreds of millions more were at risk of falling into energy poverty.
"This crisis has pushed a number of economies into recession, caused higher inflation, and put painful cost-of-living pressures on households around the world," the authors wrote in the report.
"European countries reliant on oil and natural gas imports from Russia … face unprecedented fuel supply shortages only slightly tempered by slowing economic growth and a mild winter.
"At the same time, emerging economies suffer from high fuel-import costs and fuel deprivation."
While energy markets were already tight at the beginning of last year, Russia's full-frontal assault of Ukraine on February 24 sent prices into record territory.
Russia is one of the world's biggest oil producers, accounting for more than 12 per cent of output in 2021, while it's an even bigger player in the natural gas industry.
Its attack on neighbouring Ukraine sparked a wave of trade sanctions and retaliatory measures that have wiped out much of Russia's energy trade with western countries, driving up prices as buyers sought alternative supplies.
According to the authors, the upheaval in global energy markets affected consumers in two ways across poor countries as well as rich ones such as Australia.
On one hand, they said the turmoil had made fossil fuels significantly more expensive, hitting households directly through heating, cooling, cooking and transport costs.
Indirect costs a bigger burden
But on the other hand, they said higher energy costs flowed through to virtually all other goods and services people required because energy was an essential input for most economic activities.
What's more, the indirect costs tended to be even higher in overall terms, the authors found.
They warned the broad effect was pushing more and more people below the breadline as they were forced to spend a bigger share of their income on high direct and indirect energy costs.
Australia has not been immune to the fallout, with the federal and state governments in December imposing price caps on coal and gas in a bid to shield consumers.
"Surging energy prices could affect households in very different ways," the authors wrote.
"Unaffordable costs of energy and other necessities would push vulnerable populations into energy poverty and even extreme poverty."
To illustrate the point, the report cited Rwanda in East Africa, where almost the entire population used biomass — and not fossil fuels — to provide energy for things such as cooking.
Despite this, the report noted the overall burden being shouldered by people in Rwanda was one of the highest in the world.
It said this was because people in the country were particularly exposed to the costs from the crisis indirectly flowing through to the other goods they needed to buy such as food and clothes.
"This crisis is exacerbating energy poverty and extreme poverty worldwide," they wrote.
"For poor countries, living costs undermine their hard-won gains in energy access and poverty alleviation."
Fossil fuels a 'systemic risk'
With inflation running rampant in many economies and fears of a grinding war in Ukraine that could keep energy prices high, the authors pressed for an accelerated shift away from fossil fuels.
They warned that as long as the world remained heavily dependent on coal, gas and oil, it would continue to be exposed to the risks of price shocks and supply squeezes.
"This unprecedented global energy crisis should come as a reminder that an energy system highly reliant on fossil fuels perpetuates energy-security risks and accelerates climate change," they wrote.
"These emphasise the urgency to realise diversified energy sources and develop a more secure, diverse, reliable and independent energy system by accelerating the clean energy transition for all countries.
"Multilateral action is critical to address potential energy transition bottlenecks and alleviate inequalities in access to affordable energy for households worldwide."