June 21, 2008

Energy Prices and the Poor

To pick up on the social policy for climate change I talked about earlier:

One of the easiest ways to short-circuit discussion about climate change policy is to denounce it as a raw deal for low-income families that will jack up their electricity bills and gasoline costs in order to deal with some threat that may or may not happen several decades in the future. Mostly this is just faux-populism, often from quarters that couldn't give a damn about poverty in other circumstances. But there are more sophisticated versions of the argument that can't be dismissed -- for example, that the real beneficiaries of climate change legislation will be rent-seeking elites rather than ordinary citizens, and that the side deals and carve-outs will render the legislation worse than useless to boot. During the aborted debate in the Senate on the Lieberman-Warner climate change bill a few weeks ago, we got to see some of each type of argument.

There's been plenty of discussion elsewhere on the internets about the merits of Lieberman-Warner and other macro-level climate change mitigation policies, but what I want to ask right now, as a sort of prelude to my particular discussion, is whether climate change policy, most prominently the pricing of CO2 emissions, necessarily leads to higher energy prices. Depending on where you live, it could yield different results. If you live near a hydro or nuclear plant, or have reliable access to mass transit, the answer is probably not that much. However, given the integrated nature of the electricity system in the US, and given how few Americans have access to mass transit, that doesn't necessarily mean increased prices for coal, oil, and natural gas won't affect energy prices in those areas. Indeed, with coal making up half of the electricity supply in the US, carbon pricing will mean some increases in electricity prices in the aggregate. How much depends on the steepness of the pricing scheme, the particular mix of electricity sources in your part of the country, and the availability of mass transit in your metro area.*

If this is the case, how do you address the fact that low-income and even some middle-income households spend more of their income on energy than high-income households, and thus will be even more squeezed than they are already? Don't we have an obligation to make sure energy prices are affordable to those with the least amount of disposable income? This is where having revenue from either a carbon tax or auction of carbon emission credits tends to come into play: With that money you can in theory lessen the impact on low-income households; e.g., promote weatherization, offset other taxes, provide direct payments, etc. It then becomes a question of which batch of policy tools will cushion the blow of higher energy prices the most.

At the same time, the purpose of pricing carbon is, above all, to change behavior: Wasteful energy consumption should be curtailed, renewables should substitute for fossil fuels, and (perhaps most important) our current patterns of development should be altered: I agree with those who say a responsible climate change policy needs to promote high-density, transit-friendly living and discourage the car-dependent suburbanization that has prevailed in the US for most of the last century. What environmentalists and other people working on climate change should keep in mind, however, is that pricing carbon emissions could well entail negative changes in how low-income people live their lives that even carbon tax revenues can't ameliorate. For example, the continual climb in gasoline prices, combined with the subprime mortgage mess, has created the phenomenon of the suburban slum, something practically unheard of in this country. If denser development is higher in demand, then those without means are forced to move to the outskirts of metro areas, where mass transit is scarce and car transport of some kind is the main, or only, option. More generally, we need to think about whether our goal is return low-income households to a status quo ante with respect to energy prices, or whether, following Van Jones, we should use the occasion of climate change to address poverty and the shrinking middle class in a significant way. I don't have an answer, but I think trying to answer it would shape the climate change debate profoundly.

*Add to this also how many of the things you buy depend on truck vs. rail transport, which also affects prices generally.

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