Rising US Income Inequality and Declining Residential Electricity Consumption: Is There a Link?
This paper examines the effects of rising income inequality on residential electricity use, finding that climate and air quality improvements valued at $3.14 billion in 2020 due to lower electricity consumption.
After growing steadily for decades, in the mid-2000s, average US household energy consumption began declining. Using household-level data from the Residential Energy Consumption Survey and Current Population Survey between 1990 and 2020, we decompose overall changes in per-household consumption into three components: a) average income; b) cross-household income and geographic distribution; and c) consumption habits, which includes energy efficiency. Growth of average income caused consumption to increase by 11 percent, and rising income inequality reduced consumption by 9 percent, nearly entirely offsetting the effect of income growth. If inequality had remained at 1990 levels, average consumption would have continued growing steadily through 2020. After controlling for average income and the income distribution, changes in habits reduced consumption by a similar amount as rising income inequality. Back-of-the-envelope calculations indicate an unexpected effect of rising income inequality: climate and air quality improvements valued at $3.14 billion in 2020 due to lower electricity consumption. The results indicate the importance of coordinating inequality and pollution policies.
Common Resources — Jun 23, 2022
Income Inequality Is a Key Driver of Decreased Residential Electricity Consumption
New research shows that rising income inequality has been just as influential as energy-efficiency programs in reducing electricity consumption.
Press Release — Jun 23, 2022
Rising Income Inequality Linked to Declining Average Household Energy Consumption
A new study finds that falling household electricity consumption is due in part to rising income inequality—an indication that policies addressing inequity may inadvertently increase consumption and associated pollution.