As discussed yesterday on this site, a new report by economist Roger Bezdek demonstrates that carbon energy has immense social benefits, and, consequently, carbon pricing schemes can have devastating social costs.
Today’s post takes a closer look at Bezdek’s discussion of the health risks of policies, such as carbon taxes, cap-and-trade, renewable energy quota, and carbon capture and storage (CCS) mandates, that raise household energy costs.
Although fuel poverty is typically discussed as a European problem, millions of Americans also face harsh tradeoffs between paying their utility bills and purchasing other necessities. The relevant concept here is energy burden, defined as the “percentage of gross annual household income that is used to pay annual residential energy bills” for electricity, heating, motor fuel, and cooking fuel. More simply, energy burden is the “ratio of energy expenditures to household income.”
For low-income households, small increases in energy bills translate into large increases in energy burden:
For example, consider the case where one household has an energy bill of $1,000 and an income of $10,000 and a second household has an energy bill of $1,200 and an income of $24,000. While the first household has a lower energy bill ($1,000 for the first household compared to $1,200 for the second), the first household has a much higher energy burden (10 percent of income for the first household compared to five percent of income for the second).
In other words, carbon taxes or their regulatory equivalent are regressive, because energy expenditures consume a larger portion of the budgets of low-income households than high-income households. The regressivity of high energy costs is greater than you might suspect. According to Bezdek:
- Families earning more than $50,000 per year spent only 4% of their income to pay energy-related expenses.
- Families earning between $10,000 and $25,000 per year (29% of the U.S. population) spent 13% of income on energy.
- Those earning less than $10,000 per year (13% of population) spent 29% of income on energy costs.
These percentages are higher still when energy expenditures are compared to after-tax income. For the 8.7 million Americans earning $10,000 a year and less, energy costs consume more than 69% of after tax income:
Even without carbon taxes, cap-and-trade, or national renewable energy quota, the energy burden of all U.S. households has increased significantly over the last decade, especially for low-income households: [click to continue…]