The following is a contributed article by Arjun Makhijani, president of the Institute for Energy and Environmental Research, and Boris Lukanov, senior scientist at PSE Healthy Energy.
One in three U.S. households — about 40 million in all — are faced with the persistent, difficult and fundamental challenge of paying their energy bills and paying for other essentials like food, medicine and rent. Utility bills have been rising as have gasoline prices. Russia’s invasion of Ukraine and associated sanctions have added sharp volatility to oil prices. Significant increases, even if temporary, can have adverse long-term impacts on low-income households as evidenced by the fact that over one-third of adults cannot readily meet an unexpected expense of $400.
An urgent question posed by climate imperatives is: will the transition away from fossil fuels worsen energy cost burdens or can it be managed in ways that increase energy affordability. Nearly half of all U.S. states have set legal targets to increase the share of clean energy resources and lower greenhouse gas emissions, yet few of these policies address longstanding concerns around energy affordability and energy equity directly. Our recent study, prepared for the Colorado Energy Office by researchers at PSE Healthy Energy and the Institute for Energy and Environmental Research, provides the most comprehensive analysis to date of energy cost burdens — a key metric for measuring energy affordability — and outlines strategies to meet state emissions targets while lowering the cost of residential energy for low-and moderate-income households.
Our conclusion: prioritizing investments in energy-cost-burdened populations can help states meet their emissions reductions targets while saving billions of dollars. These savings result from a significant expansion of energy efficiency, electrification, community solar and demand response programs for low- and moderate-income households, lowering the total amount of direct assistance needed to make utility bills affordable for these households over time. The study also shows that an affordability and equity-informed approach more directly addresses long-standing social inequities stemming from the use of fossil fuels, can lower health-damaging air pollution faster, and can accelerate the clean energy transition, thereby benefiting all of society including non-low-income households.
Our findings provide a stark contrast to the conventional approach, which has put energy bill assistance and climate-related investments on separate tracks. The result has been that assistance has failed to make energy affordable and low-income households have had scant access to the benefits of the clean energy transition. What’s more, unless the clean energy transition directly addresses existing inequities in the fossil fuel-based energy system, we risk exacerbating them. For instance, as climate policies and market forces continue to drive clean energy adoption, wealthier households will tend to electrify their homes earlier. As they do, the costs of the natural gas system will be paid for by fewer and fewer customers. Unless climate policies directly invest in electrification of low- and moderate-income households early on, people on the lower end of the income spectrum will be left picking up the tab for our legacy natural gas infrastructure.
Meeting Colorado's emissions targets
Our goal was to design a strategy that would be fully consistent with Colorado’s emissions targets, while bringing energy costs under 6% of income for all low- and moderate-income households in the state. To do this, we prioritized greenhouse gas reduction strategies that could simultaneously reduce energy cost burdens. These strategies included expanding energy efficiency, electrification, community solar, and demand response programs for low- and moderate-income households through a combination of grants and interest-free or low-interest loans, with bill assistance used only as a supplement, where needed. Once the investments were made, the remaining need for assistance would be mainly at the lowest end of the income spectrum. Other households in the low- and moderate income range would need no bill payment assistance to achieve energy cost burdens of less than 6% of income.
We found that fully integrating equity with climate change mitigation goals in Colorado would result in a cumulative net savings of approximately $1.5 billion over a 20-year period compared to a bill assistance-only approach. The key to maximizing the effectiveness of these investments is to strategically target energy efficiency, electrification of heating, and access to low-cost community solar electricity for all low- and moderate-income electricity customers.
In general, rural areas in Colorado have higher energy cost burdens, especially in areas where propane is a common heating fuel; electrification of heating, along with building weatherization, would be a priority in such areas. Urban areas with a high fraction of Black, Indigenous and People of Color communities would need increased investments in community solar gardens and energy efficiency to lower their energy bills. Additionally, enabling low- and moderate-income households, including renters, to participate in demand response would provide them with opportunities to further lower their energy bills.
Achieving these savings requires giving first priority to low- and moderate-income households for energy efficiency and fuel-switching programs. Instead of waiting for the cost of clean energy technologies to decline, we found that it would be advantageous to invest in energy cost-burdened households from the get-go, recognizing that all homes must reach increasing levels of energy efficiency and electrification over the next 20 to 30 years.
Accelerating clean energy adoption for low-income households, renters and populations of color would help increase energy affordability earlier and reduce the need for energy bill assistance over time, resulting in overall net savings. In practice, this will mean policies like grants and low-interest loans, incentives for landlords, and Green Bank-funded loss reserves to enable low-income households to sign long-term contracts for community solar.
Fully integrating energy affordability into climate policy is a novel approach, but our analysis shows that it supports greater social justice, emissions reductions, and makes economic sense for society as a whole. Indeed, our research found that the more equitable approach to the energy transition increases the overall financial benefits of policies to lower greenhouse gasses. This is in part because low-income households generally live in less efficient structures and weatherization investments have a greater potential for higher returns over time. Making energy more affordable by investments is also more politically sustainable than substantial increases in funding for utility bill payment assistance, which are usually difficult to sustain and are vulnerable to cuts in adverse political circumstances.
The urgent need for a rapid transition to clean energy can and should be joined to the longstanding problem of unaffordable energy faced by tens of millions of families. Our study shows that this is eminently feasible and desirable. By investing in emissions reductions for communities facing the greatest challenges paying their energy bills, state climate goals can save taxpayers and ratepayers money and support a healthier, more just energy system.