Assessing energy poverty in Italy: an endogenous cut-off determination

In recent years, the key role of energy in individual well-being has drawn the attention of policymakers, institutions, and researchers to the issue of energy poverty. Energy poverty refers to a situation in which households struggle to access or afford essential energy services. The vulnerability of several households has worsened due to the reduction of disposable incomes resulting from the labor market crisis, escalating unemployment triggered by the COVID-19 pandemic, and the increase in domestic energy demand brought about by the extended periods of lockdown. The expenditure-based approach defines energy poverty as the inability to afford adequate energy services while keeping expenditures within a reasonable level arbitrarily defined. A commonly used cut-off considers household energy-poor if the ratio between energy expenditure - in heating and electricity consumption - and the total expenditure is greater than 10%. With the aim of investigating the theoretical foundation of this ratio we implement a stratification approach identifying sub-groups of cut-offs at each iteration by approximating their distribution with a sequence of two-component log-normal mixtures. Thus, different cut-offs are not fixed a priori but rather endogenously by the iterative procedure. Using data from the Household Budget Survey (HBS) provided by the Italian National Institute of Statistics in the years 2019-2022, the stratification algorithm supports the assessment of the percentage of Italian households in energy poverty highlighting differences pre and post COVID-19.