Research by the Central Bank examining the potential impact of long-run energy price rises on mortgaged households shows households with low incomes and larger properties, and those residing in rural locations, are significantly more vulnerable.
It found that targeted energy efficiency supports may be required to support households that are disproportionally impacted.
"An Estimate of Climate-Related Transition Risk in Irish Mortgage Lending", authored by Tamanna Adhikari, James Carroll, and Derek Lambert.
The authors calculate new estimates of energy and emissions for mortgaged households with a view to identifying those most at risk. They find that energy consumption and emissions are positively correlated with income, property size, the number of occupants and location. Emissions among higher-income groups are over double those of lower-income groups. Furthermore, energy usage is 40% higher in rural areas, largely due to bigger properties and higher transport expenditure.
The Note further finds that bank exposure to energy-intensive households is likely to be sizeable – close to 60% of mortgaged households are currently in "high" or "very high" energy/emissions categories. In the long run, however, household resilience will depend on two factors – income growth and the speed of household energy/emission mitigation, for example, through increasing energy efficiency levels and switching to low-emission fuels. The authors note that lower-income households are less likely to be in a position to invest in such technologies.
It also finds that, in a best case scenario of 2% income growth and high energy/emissions mitigation, the average household energy-to-income ratio in 2050 would not increase. This emphasises the link between national decarbonisation targets and overall financial stability. From a policy perspective, the Note suggests that targeted transition supports for those households most at risk would help to reduce wider risks to economic and financial stability.
