Could the U.S. End Energy Poverty?

August 25, 2020
Jill Rose/Pixabay
Joseph Daniel
Senior Energy Analyst

On May 25, 1961, President John F. Kennedy announced that the United States would dedicate resources to send a man to the moon. At the time he made that announcement, we knew little about what it would take to make that a reality, but an American president committed to making it happen and we got it done.

Turns out when the government commits to great big plans and backs it up with the resources needed, we can accomplish great big things. With that in mind I have to ask:

Could we end energy poverty?

Based on some cursory calculations, it doesn’t look like it would cost that much. And the good news: I know where to find the money.

What is energy poverty?

In the simplest sense, the energy burden is the percent of your income that goes to energy services like electricity and gas that power appliances and heat or cool your home. If your energy burden gets to a certain troublesome level, experts consider that energy poverty. Academics seem to disagree on the exact threshold; some say as high as 30 percent, while others say 20 percent of one’s income.

What is indisputable is that while the average energy burden in the US typically hovers around 2.5-3 percent of one’s income, the average low-income household faces an energy burden that is 2x to 10x those levels. So, while we all feel an energy burden (because we all must pay for the energy we use), energy poverty falls directly onto the backs of millions of households from disadvantaged communities.

In hard economic times like these, energy poverty leads many to impossibly difficult decisions, like whether or not you should pay for electricity so you can run an AC unit and not die of heat exposure, or pay for medicine or food instead. Not paying your electric bill can also have implications on your ability to stay in your apartment and even impact child custody.

It’s a problem that we must solve.

Not that much, when you put it anyway

Using data from DOE’s Low-income Energy Affordability Database, I have calculated that the cost to cover 100 percent of the energy bills for all families at or below the federal poverty line would be about $10 billion a year. Since eliminating energy poverty does not necessitate paying 100 percent of someone’s energy bills, let’s call that $10 billion number the upper limit of eliminating energy poverty among those living below the poverty line.

However, even those that live above the federal poverty line suffer from an above-average energy burden and may even cross a threshold into energy poverty. In recent years, those living at 4 times the federal poverty line and below spent about $45 billion on energy annually. In theory, $45 billion is how much it would cost to end the energy burden for all those living at or below 4x the federal poverty line. Eliminating energy poverty should cost less than that. So, let’s call $45 billion per year the high-end estimate to end energy poverty.

A little perspective

To put $10 billion in perspective: Boston’s “big dig” to install several miles of tunnels through the city, cost more than twice that to fund!

But at least Bostonians got some tunnels for that money. Many times, energy bills have charges that force people to pay for energy infrastructure that never even gets built. For example, a failed nuclear plant in South Carolina, the VC Summer plant, was abandoned in 2017.

Its cost: $9 billion.

$9 billion could have covered the energy bills for all South Carolina families living at or below the federal poverty line…24 times over.

Now, families in South Carolina are stuck paying for a power plant that will never generate power.

In nearby Virginia, consumers that are at or below the federal poverty line have paid roughly $300 million annually in energy bills in recent years; meanwhile, Dominion, the large monopoly utility in the state, over-collected about that amount in both 2017 and 2018.

What if we considered this challenge at a national level? The federal government could easily appropriate $10 billion; with the annual federal budget approaching $5 trillion, it’s a drop in the bucket.

It’s a little over 1 percent of the US military’s annual budget.

The current administration’s tax cuts alone amounted to an annualized cost of around $100 billion in corporate bailout money and tax breaks for the uber-wealthy.

$10 billion is a mere 10 percent of that.

It is also worth noting that the current tax code provides corporate welfare to companies, including utility companies like Xcel in Minnesota and DTE in Michigan. As a result, dozens of companies pay a negative tax rate.

If we just account for the 27 largest corporations that had a negative tax rate, which includes Xcel and DTE, and implemented a 15 percent minimum corporate tax rate on those companies alone, the US could pay for 100 percent of the energy bills of every family below the federal poverty line.

When even the high estimate is low

The DOE numbers indicate that covering 100 percent of the electric and home heating bills of all families at or below 4x the federal poverty line would cost $45 billion per year. Remember, in reality, we’d probably need less than that.

That puts my estimate to ending energy poverty in the range of $10 billion-$50 billion per year.

You know what else the US funds in the range of $10 billion-50 billion per year?

Domestic fossil fuel subsidies.

That’s right. The US has a choice: we could either continue subsidizing fossil fuels, or we could try to make energy poverty functionally extinct.

Throwing money at the problem isn’t a long-term solution

One last thing. Like so many energy injustices, energy poverty does not exist in a vacuum. Even after accounting for income, Black families pay more for energy than white families and are twice as likely to have their electricity shut off as white families. The crushing weight of structural racism and the lack of economic mobility all mean that just throwing money at this problem won’t truly end energy poverty. But we can make the problem a whole lot less bad if we simply committed to it.

Instead, we underfund great programs like WAP and LIHEAP that directly help alleviate the energy burden and help reduce energy poverty. We need to fund those programs a lot more and make massive investments in sustainable housing that is accessible to low- and moderate-income families. We need to increase access to renewables for low-income families and people of color.

Why do we need to do this?

Because when the government commits to great big plans and backs it up with the resources needed, we can accomplish great big things.

Posted in: Energy

About the author

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Joseph Daniel is a senior energy analyst and manager of electricity markets with the Climate & Energy program at the Union of Concerned Scientists. In his role, he serves as the primary point person for coordinating UCS’s utility regulatory work at state public utility commissions, independent system operators, and the federal energy regulatory commission.