On its face, Thursday’s report from two Republican senators on energy insecurity isn’t half bad.
Released by Sen. Lisa Murkowski (R-AK) and Sen. Tim Scott (R-SC), the report digs into how increases in energy costs hit lower-income Americans. Specifically, its three metrics are: how many households will see a significant drop in their budget of spendable income with a given increase in energy costs; how many households will be pushed below the poverty line with that increase; and how much that increase will affect the average household energy burden, as expressed through a percentage of average gross income.
These are all good things to know. Where this gets touchy is the political context: the Obama Administration recently unveiled new Environmental Protection Agency (EPA) regulations to cut carbon emissions from the nation’s power plants — by far the most ambitious effort yet by America to reduce its greenhouse gas (GHG) emissions. The move produced ferocious opposition from many Republicans and conservatives, and the possible effect on energy prices has been one of their primary talking points.
The critiques tend to ignore the actual design of the regulations, simply assuming any effort to cut GHGs must drive up energy costs by default. Murkowski and Scott’s paper follows a similar vein: it doesn’t mention the EPA rules directly, however the unspoken implication is clear.
But first, where Murkowski and Scott’s paper is valuable: they point out that energy insecurity — which they define as “the inability to pay for heating or cooling required to maintain a home at a reasonable temperature, and the loss of access to electricity through cessation of service due to non-payment or other factors” — affects household well above the poverty level. It forces families to make trade-offs with food, medical care or education. It can force people into greater debt. It can even drive up climate emissions in some instances when people switch to cheaper but dirtier sources of energy.
“Energy costs for people above and below the poverty line are very similar in absolute dollars, but… wealthier households spend a smaller percentage of their income on energy than poorer households,” the report points out. “Poorer households are naturally more sensitive to increases in energy costs and are at far greater risk of energy insecurity.”
And the three metrics in the report can help flesh out that effect. After running the numbers, the report concludes that a 10 percent increase in household energy costs nationally would push 840,000 individuals below the poverty line. It would also add 7 million individuals to the ranks of people paying more than 10 percent of their gross household income on energy, and it would force 65 percent of American families to spend additional sums on energy that could go to one-to-three weeks worth of groceries.
So should the country expect a 10 percent increase in energy costs because of the new EPA power plant regulations? Well that’s the rub.
The U.S. Energy Information Administration anticipates an average increase in energy prices of 3.1 percent this year. That accounts for both current government policy and market trends, and the latter can seriously remake the country’s energy landscape irrespective of policy. The forecast doesn’t include the effects of the power plant rules, but Murkowski and Scott point to Australia and Germany — which saw a 110 percent increase and a 15 percent increase in electricity prices from 2011 to early 2013, respectively — to show such a hike is possible.
But America is its own country with its own policy and energy sector. EPA itself anticipates the new regulations will actually drop electricity bills 9 percent by the time they get fully implemented in 2030, because increasing energy efficiency is one of the many options the agency gives states for meeting their carbon-reduction targets.
That flexibility is itself another reason prices are unlikely to spike, because they allow more opportunity for emitters to find the least-costly option that works best for them. In the end, EPA anticipated the total cost of complying with the regulations throughout the entire economy — not just to energy bills — would be at most $8.8 billion in 2030.
That’s $65 per household. By comparison, if the regulations were causing a 10 percent rise in energy prices, according to Murkowski and Scott’s report, 80 percent of families would be spending $100 to $500 more per year.
To have the actual cost of a set of regulations be much lower than what critics predicted is hardly improbable. Since the 1970s, the energy industry and others have repeatedly anticipated major cost increases as a result of new environmental rules, and they’ve repeatedly overshot by wide margins. Economies are also tremendously complex systems, and people and businesses are not in fact always rational actors, which means win-win situations can happen in which cutting GHG emissions actually improves economic outcomes.
At the same time, cutting emissions from coal plants comes with a raft of health benefits for the surrounding communities, which show up as improved performance in the local economies. So while the areas of the country most dependent on coal are probably the most at risk for energy price hikes, they’re also the first and primary beneficiaries of those health effects.
Finally, it should be mentioned that it takes a considerable amount of chutzpah for members of the Republican Party — which has roundly opposed increases in government spending and sought to slash the social safety net — to turn around and worry about household costs for low-income Americans. Murkowski and Scott acknowledge there are programs in place to help vulnerable Americans, but point to the government’s “budget challenges” to claim that expecting further spending hikes “is not realistic.” But it’s not realistic because of Republican opposition. The American economy itself is more than capable of supporting higher spending. Failing to provide lower income Americans with more assistance is purely a political choice.
Dean Baker, a prominent Washington D.C. economist and the co-founder of the Center for Economic and Policy Research, pointed to options like giving low-income households subsidies to install wind and solar, or to upgrade their homes’ energy efficiency. This would both reduce their energy bills, cushion them from future price hikes, and provide many people in those same communities with jobs. (Local workers will be needed to do the installations and the upgrades.) Alternatively, lawmakers could expand the earned income tax credit — and idea supported by both sides — and provide as much as $800 more a year for workers at the poverty level.
They just have to choose to spend the money.