Understanding the Gap: America’s Community-Based Disparities in Energy Efficiency

With home energy consumption accounting for around 17% of America’s greenhouse gas emissions annually and major weather events testing the resilience of homes, improving the energy efficiency and performance of U.S. homes is becoming an increasingly important policy goal nationwide.

Recommendations for States Designing IRA Market Transformation Programs to Support Underserved Communities:

• Prioritize Resilience: Enhance community resilience to major weather events for low-income populations.
• Center Equity: Ensure program designs prioritize equity so that our energy future is inclusive.
• Leverage Legislation: Utilize recent laws like the Inflation Reduction Act, Bipartisan Infrastructure Law, and Justice40 Initiative.
• Address Energy Burdens: Tackle high energy burdens in underrepresented and rural communities, especially in poverty.
• Focus on Efficiency Gaps: Target energy-efficiency gaps, notably in homes of communities of color, addressing historical issues.
• Combat Split-Incentive Dilemmas: Address landlord reluctance to invest in energy upgrades in rental properties.
• Encourage Community Support: Build community support, acknowledging the impact of historical racial prejudice.
• Promote Inclusive Education: Support low-cost education for stakeholders, emphasizing energy efficiency and resilience.
• Facilitate Data Integration: Integrate data into MLS and explore auto-population for high-performance home visibility.
• Public and private sector players leading this effort must prioritize two distinct goals in this clean energy transition.

1) Increasing our nation’s energy resilience is crucial as we accelerate our timeline for achieving key decarbonization milestones and goals.

2) It is also critical that as we work toward these goals, we focus on creating a more inclusive and equitable energy future for all.

Recent landmark legislation has already begun advancing these two connected goals, such as the Inflation Reduction Act (IRA), the Bipartisan Infrastructure Law, and the Justice40 Initiative, which aims to allocate 40% of federal climate investments to disadvantaged communities. In this unprecedented moment of promise for the clean energy transformation, the focus on energy equity continues to gain attention. It has to be emphasized that certain communities have suffered from underinvestment in infrastructure and clean energy. This moment thus asks us: What can policymakers, program administrators, and other stakeholders do to bring this cleaner, more inclusive, and equitable vision to life?

We’ll answer that question in this two-part blog series, the first of which frames the high-level challenge by examining the disproportionately high energy burdens borne by underrepresented and rural communities in particular.

Ongoing Disparities in Energy Efficiency: Context and Origins

Energy burden is a term used to capture the percentage of household income spent on energy bills and is a figure often used to index energy access and equity. For instance, the average U.S. household’s energy burden is around 3.5%, while Americans facing poverty experience more than double that amount. People in the lowest-income bracket spend roughly three times more on energy costs than those in the highest-income bracket. These striking differences in which American households pay the most for energy are no coincidence and have emerged differently for two distinct populations: communities of color and rural communities. What follows are the historical roots to these two tales and how they can be seen today.

1. Energy Efficiency Gaps in Communities of Color: Context and Origins

One of the primary drivers of higher energy burden in communities of color is a lack of energy efficiency measures in their homes due to poorer housing quality. Homes in communities of color tend to be lower quality and have fewer efficiency features, partly because their owners tend to have lower incomes than average. Poor quality is also an issue because the owners were unable to access loan capital to make improvements due to bank “redlining,” a practice in which banks systematically rejected loan applications from “high-risk” areas of the city that frequently coincided with communities of color. (The term “redlining” refers to how one influential institution used red to indicate the borders of the high-risk areas.) While court cases have ruled redlining illegal, many banks have continued similar practices informally.

The result is that homeowners lack access to loan capital to make home upgrades. These homes use more energy, cost more to maintain, and even have more health hazards. The average life expectancy for residents in a formerly redlined area can be as much as 21 years less than the life expectancy in a predominantly white neighborhood, even a few miles away.

Furthermore, these and other discriminatory policies have generated lower overall rates of home ownership in these communities, which ultimately means that households of color are more likely to rent than white households. Rental tenure may create a situation known as the “split-incentive dilemma.” If a renter pays the utility bills, the landlord’s incentive to make energy upgrades is reduced because they do not directly benefit from energy savings. The outcome? Renters, who tend to be people of color, are less likely to experience lower utility bills, higher indoor air quality (AIQ), and increased personal comfort generated by these improvements.

Overall, it is clear how racial prejudice has shaped both housing and energy efficiency outcomes in the U.S., which gives some indication of why community support will need to be rebuilt.

2. Energy Efficiency Gaps in Rural Communities: Context and Origins

In addition to a racial divide regarding energy and housing costs, there is also an urban/rural divide. Roughly one in five Americans lives in a rural area, a designation that applies to 97% of the country’s land mass. As with communities of color, the roots of present-day disparities in energy efficiency among rural communities are deep-seated, complex, and historically based. One of the primary issues is that rural households have historically earned less, on average, than their urban and suburban counterparts. As a result, rural residents have less money to spend on energy, which lowers the demand for energy in rural areas and disincentivizes utilities from investing in energy infrastructure. This, in turn, leads rural households to benefit from lower subsequent gains in productivity and income than their more widely electrified urban peers, and the cycle repeats.

Other factors grounded in tradition also come into play: A historically heavy reliance on traditional fossil fuels may contribute to the reluctance some rural communities feel today around converting to cleaner, lower-cost energy sources.

Overall, the role of inflated energy costs in perpetuating current energy efficiency disparities for rural communities is difficult to overstate. Region-by-region analysis, for example, shows that rural households generally have higher median energy burdens than non-rural households in states like North Carolina, rural counties have the heaviest energy burdens across all income brackets.

In some cases, the underlying causes of sky-high energy costs for rural households may be beyond the power of utility companies to control. The disproportionately high fuel costs confronting Alaska’s rural utilities — four times those of utilities operating elsewhere in the state — are a case in point.

In light of findings like these, it’s clear that reducing energy costs and rectifying long-standing rural-urban disparities in energy efficiency will have wide-ranging positive effects. All rural subgroups stand to benefit from even modest improvements in home energy efficiency. The evidence shows that the state- and federal-level programs and services designed to incentivize or minimize the costs of those performance improvements have not been widely utilized as yet.

In that vein, though the full variety of near- and long-term positive impacts of closing the urban-rural gap in energy efficiency remains to be seen, the historical record suggests these could be far-reaching and pronounced. An analysis of electrification among American farmers between 1930 and 1960 found that the benefits of electrification exceeded costs across the board and that most newly electrified rural counties experienced economic growth in the decades that followed — a clue to the promise of the clean energy transformation and a hint of what is at stake.

Conclusion: Shifting to Solutions

We’ve called attention to striking disparities in energy efficiency that continue to exist in America today and showed how the unequal energy burdens can be mapped to and associated with other, older forms of inequality in underrepresented and rural communities in particular. After understanding the historical context of these disparities, the upcoming blog will offer practical recommendations and guidance tailored for policymakers, program administrators, and other stakeholders.

To help set the stage, we’ll also be zeroing in on the following three energy efficiency barriers, which are shared by underrepresented and rural communities alike:

• Access barriers: Lack of access to relevant energy efficiency programs
• Financial barriers: Challenges related to cost and affordability
• Knowledge barriers: Limited awareness and education

In the coming years, addressing inequality will not only be a significant priority for policymakers, program administrators, and other stakeholders but will also serve as a crucial metric for evaluating their success.

This article was originally published in the Pearl Certification Blog and is republished with permission.