Climate Series #4: Utilities are a Limited Option for Offsetting Increased Energy Costs

As noted in previous posts, Congress is considering legislation to implement a cap-and-trade program to restrict greenhouse gas emissions in order to curb climate change. Although such a program would have a positive impact on the environment and the health and well-being of communities, it would also cause regressive energy cost increases for lower income households.

Relying on utility companies for consumer assistance has emerged as one strategy to offset the costs. However, according to a recent report by the Center on Budget and Policy Priorities there are limitations to this approach.

For starters, utility bills will account for less than half of the total rise in energy costs for lower income households. As illustrated in Figure One, over 50 percent of the cost impact experienced by lower income consumers would be due to increases in the price of gasoline, home energy bills other than utility bills, and energy-intensive products, such as food.

Importantly, a utilities approach would reduce the incentive for lower income consumers to conserve energy. A key goal of a cap-and-trade system would be to motivate consumers to reduce their energy consumption by modestly raising prices. Because lower income households’ utility bills would be reduced under a utilities strategy, these households would have less of an incentive to conserve energy.

And finally, lower income households whose utilities are built into their rents, might not receive adequate compensation. Instead of a utilities approach, see our post on an alternative rebate strategy proposed the Center on Budget and Policy Priorities.