Will clean energy impoverish the poor or help create a path to energy justice? (Part I)

Millions of low-income families already face crushingly high burdens of energy costs. High energy costs burdens  as a percentage of income are a principal cause of financial distress, creating conflicts between paying utility bills or rent or buying medicines and food. The consequences include ill-health, insecurity, and, in many cases, evictions and mortgage foreclosures.  Six percent of income is considered the maximum affordable amount for utility bills (1); for low-income households energy burdens are often 10 to 15 percent and as high as 30 percent, and sometimes more, for the lowest income groups. 

What is the magnitude of the gap between actual energy bills and affordable energy even before extreme weather events exacerbated by climate change make it worse?

I summed it all up in a paper on energy burdens I prepared for the Just Solutions Collective here, co-published with the Climate and Clean Energy Equity Fund. The objective was to elevate the need to address energy burden, as well as provide budget numbers for advocacy groups while Congress was considering a $3.5 trillion social infrastructure and energy transition bill in 2021. The plan has bit the political dust; but of course, the need to create a clean energy transition that is equitable and economical for all remains.

In round numbers, filling the gap between the actual energy burdens of low-and moderate-income households (defined as less than 200 percent of the federal poverty level) and an affordable six percent of household income is about $36 to $40 billion per year.  Federal assistance is typically about a tenth of that amount; state assistance programs complement the federal money, leaving an annual residual gap of roughly $30 billion. This is not a large sum in the federal scheme of things; it amounts to about half-a-percent of the anticipated federal budgets in the early to mid-2020s.  Considering it would greatly alleviate financial stress and suffering among more than 30 million families, it can even be considered small.  

About five percent of households that now receive utility bill assistance also lose their homes each year as a result of financial stresses between paying for medicines, food, utility bills, or rent.  That is roughly 300,000 families losing their homes every year.  Three-fourths move in with family or friends, creating new stresses, crowding, and, as the pandemic has shown, health risks.  One fourth become homeless or are in public shelters.  The costs and stresses on families that lose their homes are devastating.  The homes where they move become more crowded with potential health consequences.  But there are costs for non-low-income households as well.  The cost of added emergency room visits to hospitals alone for each homelessness event can amount to roughly $20,000; expenses on shelter add to these costs (2). Ill-health and loss or productivity has been noted as consequences of homelessness (3).  

Low-cost solar energy and wind energy are widely held to promise not only clean energy but also lower cost energy and millions of jobs.  On average.  But averages can hide a lot of sins.  The task is to ensure that the averages also reflect changes for the better in the experience of low- and moderate income households; the lives of rural as well as urban people; those who have heating systems that use fossil gas or propane or fuel oil -- and those who now sometimes rely on gas stoves and ovens and portable kerosene heaters to keep warm.

The economic opportunities of the transition to clean energy will come via investment in distributed solar energy, storage, smart grids and appliances, weatherization, and efficient electrification of homes and transportation. Without the capital to invest, dependence on landlords’ decisions on investment for instance in efficient heating or weatherization creates the prospect that a bad situation today could get worse for families of modest means because of the transition to clean energy. This prospect was recently explicitly recognized by the California Public Utilities Commission in 2021. It said that better off households that can afford electric vehicles, smart appliances, solar and storage, and other technologies will be able “to shift load and take advantage of potential structural billing benefits that follow….”  The report added that this “often results in a cost shift toward the lower-income and otherwise vulnerable customers." (4)

While it is not often so bluntly said, an inequitable energy transition could wind up making more people homeless. Moreover, without integrating energy equity, the energy transition will be slower, less effective, and likely fall short of the rapid change needed to minimize rapidly mounting climate harm.  There are therefore compelling reasons to integrate equity into the energy transition design.

The first step is to make the resources available for energy assistance; the second is to reduce the need for assistance by investments that will reduce energy cost and emissions at the same time, including for the lowest income households.  

Currently, only about a fifth of the households eligible for assistance actually get it (5), which means that the vast majority of households either do not apply or are turned down if they do.  State data indicate that not applying is the more frequent cause, but refusals are also an important reason for not receiving assistance.  In Maryland, which has a typical participation rate, 133,389 households applied for LIHEAP assistance in 2019 of an eligible population of about 400,000; in other words, two-thirds of those eligible did not apply.  Of those who applied, about one-third were denied (6). The obstacles are huge: documentation requirements are cumbersome; lack of access to broadband makes applying even more difficult since it has to be done in person (obviously impossible during much of the pandemic). Language is often a barrier, as is adequate information more generally.  And the stigma attached to assistance prevents many people from applying. Getting from 20 percent participation to near-100-percent enrollment will itself take effort and investment.  A three or four year federal grant program totaling about $50 billion could accomplish this – at least, the resources would not be an obstacle.

The energy transition provides the opportunity to make investments to reduce energy bills and emissions at the same time. Solar is a good example.  Most low-income people are renters and even those who are homeowners would face obstacles like access to low-cost credit or suitable roofs for installation.  But suitable policies like green banks creating loan loss reserves can open up the field for all low- and moderate-income households to qualify for cheaper electricity from community solar plants. 

I’ll cover the technical aspects of integrating all households into the energy transition and making the grid more robust in an era of climate change in a future post.  Suffice it to say here that investments that benefit society, reduce emissions, reduce bills and reduce assistance requirements are possible with the right policies and vigorous implementation. The starting point surely has to be to recognize the severity of the energy burden problem today for tens of millions of families.  That awareness is needed to merge the political determination for achieving a climate-friendly energy system with the tenacity to achieve social and economic equity. 

Image Source: Getty Images

1. Housing affordability, including utility bills, is defined by the federal government as 30 percent of household income or less (HUD Affordability Guide); the six percent figure is a fifth of the affordable expenditure on housing and a common energy affordability metric (Colton 2021; ACEEE 2020). State assistance programs, like the one in New Jersey, also use this as the affordability metric.

2. See IEER’s report (pages 87 to 92) on energy justice in Maryland for a detailed discussion, including costs of added emergency room visits and shelter.

3. Caroline Julia von Wurden, “The Impact of Homelessness on Economic Competitiveness,” American Security Project, May 1, 2018.

4. CPUC 2021, download here, p. 6

5. Custom report generated by Arjun Makhijani for 2015-200, inclusive, from the LIHEAP Data Warehouse, https://liheappm.acf.hhs.gov/datawarehouse/custom_reports; includes recipients of heating and cooling assistance.  Heating alone is about 2.5 percent lower.

6. Office of Home Energy Programs, Electric Universal Service Program (EUSP): Proposed Operations Plan for Fiscal Year 2021, May 2020, Table 5 for data on applications and actual grants.  Item 556 in the Public Service Commission Docket for Case 8903.  LIHEAP Home Energy Databook FY 2017 for state eligible population (386,361), Table B-2, extrapolated to approximately 400,000 for 2019. Download at https://liheappm.acf.hhs.gov/notebooks