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Build Back Better Act would reduce the burden of household energy costs

The big budget bill being debated by Congress would help tackle climate change and also make clean electricity more affordable for strapped households.
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man putting in light bulb
(Rafael Henrique/SOPA Images/LightRocket via Getty Images)

Maria Castillo and Jon Rea are associates in RMI’s Carbon-Free Electricity program. Uday Varadarajan is an RMI principal. This guest essay represents the views of the authors, not those of Canary Media. Canary Media is an independent subsidiary of RMI

Members of Congress have a golden opportunity to make the country’s clean energy transition both faster and more equitable.

The ways that we generate and use energy today are not only harmful to the climate and our health but also intolerably expensive for far too many households. In the U.S., the country’s 18.2 million extremely low-income households spend an average of one of every six of their dollars on energy costs. For these households, this energy burden” — the share of household income that goes to energy expenditures — is nearly 10 times higher than for non-low-income households, according to data from RMI’s Utility Transition Hub.

Black, Latinx and Indigenous communities have much higher rates of energy burden than other populations. Energy-burdened families, when faced with a heat or eat” dilemma, may spend less on food and other necessities when a cold snap causes heating bills to spike.

While the U.S. and the world must decarbonize rapidly, we must also ensure that the energy transition proceeds equitably — which means reducing the energy burden for low-income households. This moral imperative is especially pressing now that lawmakers are weighing a landmark energy and climate policy.

The Build Back Better Act currently being considered in the U.S. House of Representatives contains a set of policies that, if approved, will give states and utilities tools to reduce greenhouse gas emissions while decreasing energy burdens on the households that can least afford them.

In many households, energy bills are a greater burden than federal income taxes

Energy costs are regressive, meaning that they fall more heavily on lower-income families and individuals since income varies far more than household energy bills.

The U.S. tax system, on the other hand, is progressive in structure, meaning that higher earners pay a higher federal income tax rate, both directly through taxes on their personal income and indirectly through corporate taxes. 

tax burden and energy burden charted
Energy burden vs. tax burden. (Tax burden here means the federal tax rate, excluding payroll taxes, divided by income.) Sources: RMI Utility Transition Hub, Tax and Policy Center.

So if energy transition costs are paid for with federal dollars that come into the Treasury through progressive taxation, then the transition should not disproportionately burden the lowest-income households.

Taking action on climate change without adding to the burden

For the U.S. to meet its stated goal of reducing greenhouse gas emissions by 50 to 52 percent by 2030, much of its existing fleet of fossil fuel power plants will need to be retired early or repurposed for low-carbon power generation.

This poses a number of financial and social equity challenges. As a group, regulated utility companies in the U.S. have more than $173 billion in fossil-fueled assets on their books. Accelerating the transition away from these dirty power plants means that someone will be on the hook for these costs.

Absent any policy intervention, Americans will likely bear the costs through their electricity bills — on top of the costs for replacement clean energy. So if climate policies simply mandate emissions reductions or accelerate plant closure, they risk adding to households’ energy burdens, even though clean energy is often cheaper than the dirty energy it replaces.

Fortunately, the federal government can help ensure that the costs of an accelerated transition to a clean economy are shared fairly and that any cost savings are passed on to customers.

Federal tools to reduce energy burdens 

The House’s Build Back Better Act contains a set of federal financing programs and tax incentives designed to spur rapid action on climate while reducing regressive energy burdens and supporting communities in traditional energy-producing regions. As these policies would ultimately be funded through progressive corporate and individual income taxes, they would ensure that climate action does not burden those least able to bear the costs.

The proposed $2 billion Energy Community Reinvestment Financing Program would expand federal financing tools to enable utilities to mitigate emissions from fossil infrastructure without raising rates for customers. The program would also provide financing to support displaced energy workers and community redevelopment, which are essential measures for an equitable energy transition.

The House’s proposed Clean Electricity Performance Program is also designed to mitigate costs for utility customers during the energy transition. The $150 billion CEPP would reward the customers of energy companies that decarbonize their electricity supply quickly and levy penalties on investors in companies that don’t quickly bring those benefits to their customers. Recent analyses show that the CEPP would create millions of jobs across the country while spurring economic diversification and growth in places that have long depended on the coal industry.

Finally, reforms to clean energy tax credits proposed by the House would break down long-standing barriers that have prevented the utilities that own 80 percent of the remaining coal in the U.S. from fully leveraging these incentives. This important policy change could significantly reduce energy burden by helping the most coal-intensive utilities provide their customers with access to low-cost wind and solar energy.

Time is ticking for Congress

The Senate is now considering its version of the Build Back Better legislation, also known as the budget reconciliation bill. If these clean energy programs are included in the final version that’s signed by President Biden, they will go a long way toward ensuring that energy burdens are lessened and our shift to clean energy is an equitable one.

A clean energy future should benefit everyone, and Congress now has the chance to start making that happen.

Maria Castillo is an associate with the Carbon-Free Electricity program at RMI.

Jon Rea is an associate with the Carbon-Free Electricity program at RMI.

Uday Varadarajan is a principal in RMI's Carbon-Free Electricity program and a Stanford University fellow.