Despite lower inflation numbers recently, consumers are feeling budget pressures. A recent poll from the National True Cost of Living Coalition has revealed that, despite a booming economy, middle-class families are “gasping for air financially” and find themselves struggling to plan for contingencies or to save for the future.[1]

Energy costs are pressuring family budgets. According to recent research by the American Council for an Energy-Efficient Economy (ACEEE), low-income households are currently spending nearly one-fifth of their income on the combined burden of energy bills and transportation fuel.[2] ACEEE concluded:

  • Low-income households spent on average 17.8 percent of their income on energy alone, almost four times the national average.
  • Roughly one in four households experienced high combined energy burdens (i.e., spent more than 12 percent of their income just on energy). A staggering three in four low-income households experienced high combined burdens.
  • Rural households had an average combined burden nearly 50 percent higher than urban households.
  • Black households spent on average 6 percent of their income on energy, roughly 10 percent above the national average.
  • Hispanic households spent on average 7.9 percent of their income on energy, roughly 42 percent above the national average.[3]

Since 2022, these burdens have only increased. Real energy prices are ten percent greater in July 2024 than in January 2022.[4]

Public policies are adding to this energy burden. Federal and state subsidies and mandates to shift to more expensive, renewable energy sources have, and will, increase real energy prices. In addition, EPA recently promulgated a series of substantial rules that EPA estimates will increase home energy and transportation costs. These rules include fuel economy standards for new cars and trucks, pollution controls on fossil-fueled power plants, and pollution controls on oil and gas development. EPA estimates that these rules will add $1,200 to the purchase of a new vehicle and will increase household energy costs by more than $100 per year for electricity.

These EPA estimates of direct consumer costs do not capture the full burden. Since all businesses need energy, households not only pay more for energy when they pay their utility bill, but also when they buy almost all other goods and services. Regulatory costs in the energy sector, as EPA’s economic analysis office has found, ultimately flow through the economy, increasing the price of many other goods and services. The total costs to consumers are 20-29 percent greater than EPA’s social cost estimates in the regulation.[5]

The combination of direct and indirect energy regulatory costs hurts low-income, rural, and other disadvantaged families even harder. Energy affordability differences exacerbate the country’s existing economic and racial disparities, posing a barrier to unity.

Yet, EPA finds that the social benefits justify and exceed the social costs for each of these rulemakings. That may be so – however, there are important differences in the timing and the certainty of these benefits and costs:

  • Electricity and fuel price increases are almost certain. Regulations require compliance in three to ten years, causing firms and regulated utilities to start raising prices shortly after EPA issues the rule.
  • Benefits, such as those due to avoiding climate change damages, are likely to occur more than 30 years in the future and are inherently more uncertain. The uncertainty not only applies to the absolute size of the benefits, but also to their distribution. For example, the vast majority of EPA’s estimated social benefits will accrue to future generations of non-U.S. residents. Families today will receive far less than they will pay.

Americans may still support these altruistic policies. It is vital to our representative system of government that voters have the information to evaluate the choices regulators make. Better analysis of social benefits and costs’ uncertainties and distribution would help. For example, while the Administration has made important strides in distributional analysis of the social costs of pollution and the social benefits of avoiding these costs through regulation, it has not extended its distributional analysis to the costs of these regulations. As the ACEEE analysis shows, many in the environmental justice community already face a higher energy burden, a burden that appears to be increased by recent regulations. Of course –individual rules may different. Therefore, at a minimum, regulatory agencies should model the uncertainty in a proposed regulation’s timing and the social benefits and social costs. If we neglect to measure the impact and to consider the current financial constraints low-income households face, families — that must give up essentials and dreams like their own homes and college tuition — will not support the planned green future.

[1] Omar Mohammed, “Middle-Class Americans Are Struggling: ‘Gasping for Air’” (Newsweek, June 4, 2024).

[2] Aimee Bell-Pasht, “Combined Energy Burdens: Estimating Total Home and Transportation Energy Burdens” (American Council for an Energy-Efficient Economy, May 13, 2024).

[3] See “Key Findings.” Aimee Bell-Pasht, “Combined Energy Burdens: Estimating Total Home and Transportation Energy Burdens” (American Council for an Energy-Efficient Economy, May 13, 2024).

[4] U.S. Census Bureau, “Consumer Price Index – Household Energy,” n.d.

[5] Alex Marten, Richard Garbaccio, and Ann Wolverton, “NCEE Working Paper: Exploring the General Equilibrium Costs of Sector-Specific Environmental Regulations” (U.S. Environmental Protection Agency National Center for Environmental Economics, October 2018).