The “Black Lives Matter” movement, sparked by the killing of George Floyd by Minneapolis police at the end of May, has reverberated around the world. Particularly in North America and Europe it has gone well beyond the behaviour of the police and prompted calls to identify and root out structural racism wherever it is found. Maximilian Auffhammer at the Energy Institute at Haas looks at U.S. research that asks: “Do black households spend more on residential energy each month compared to white households?” It shows that black households pay $200 to $400/year more than equivalent white households. The poorer you are, the bigger the gap. Auffhammer notes that, so far, the energy economics community has done very little research on this topic. For that reason, it is hard to prove conclusively whether this difference is caused by energy sector practices (e.g. biased pricing, taxes, subsidies) or by wider race inequalities. But he robustly points out that if existing inequalities, whatever their cause, already disadvantage one group over another it makes any future carbon tax – or any policy that distributes transition costs – likely to increase energy costs disproportionately on those households. To deliver a Just Transition anywhere, the causes of injustice must be understood first.
I immigrated to the United States from one of the whitest places on earth – Northern Bavaria, Germany. I have continued to engage with, and tried to understand, the dark history of my birthplace. And having lived in the United States for thirty years now, I have also tried to learn as much as I can about the history and consequences of structural racism in the U.S. The effects of structural racism are measurable and large.
In economics we generally write two types of papers. The first simply documents an important finding, such as the ones mentioned above. In order to do this, we use data to establish correlations – which are not causation as the saying goes. These pure measurement studies can be hard to publish in top journals, but they can be useful for generating hypotheses to explore further.
The second type of paper studies the mechanisms underlying these empirical regularities. For example, do Black Americans pay higher mortgage rates for an identical home today because of the Home Owners’ Loan Corporation (HOLC) redlining maps in the 1930s, which restricted credit access in Black neighbourhoods? Economics, as is often the case, is starting the study of these important questions late. Within energy economics there are few studies of either type studying issues related to the racial dimensions of the energy economy.
Race and Home Energy Use
Eva Lyubich, who is a rising fifth year Ph.D. student in the Berkeley Economics department and researcher at the Energy Institute, is contributing to this small literature with a new EI working paper, by asking the simple question “Do Black households spend more on residential energy each month compared to white households?”
What she did is straightforward and fully transparent. She downloaded a bunch of Census Bureau data from something called the American Community Survey, which gives us a sample of households’ income, size, whether they rent or own their home and energy expenditures – by race. Eva then uses the appropriate statistical tools to answer her question. Here is what she found:
1) If you just do a plain comparison of energy expenditures by year, she shows that Black households pay $54 more a year and that this difference is not statistically different from zero. This is misleading, as there are many factors (e.g. location!) that influence energy expenditures of a household. So you should account for these.
2) Once you account for the differences in income (Black households on average have lower incomes) and household size, you find a statistically significant difference of $164.
3) Once you account for everything above, plus differences in city specific factors, she shows that black households pay $273 more a year if they are renters and $408 more per year if they own the home.
4) She shows evidence that both gaps are getting slightly smaller over the sample, but persist at around $200 and $310 at the end of the sample (2017).
5) Some of the most interesting findings from her analysis emerge when you look at how the gap changes across the income distribution. In figure 2 in the paper, reproduced below, she shows that rich white and Black households have essentially no gap in energy expenditures, while the gap is largest for poor households.
Searching for the cause of the gap
So the question I would like answered is where does this structural difference in energy expenditures come from? Is the gap evidence of an implicit structurally racist energy tax imposed on black households? I do not know the answer to that, but Eva shows evidence that rules out a few explanations.
She shows that accounting for home type (e.g. single family home) does not explain away the gap. She also shows convincing evidence that the age of the home does not explain away the gap.
She then dives into everyone’s favourite possible mechanism – differences in energy efficiency. She uses EIA’s Residential Energy Consumption Survey (RECS), which has detailed survey responses related to the energy efficiency of people’s homes. She shows that Black respondents reported more drafty homes (+13%), lower ownership of highly efficient, Energy Star Appliances (-7%), and lower usage of energy efficiency rebates (-3%).
My gut response was that maybe this is an information story, where energy efficiency audits focus on more affluent and whiter neighbourhoods, yet Eva shows this isn’t true either. If anything Black households report a slightly higher frequency of audits.
So now the energy efficiency – behavioural economics crowd is going to yell “SALIENCE”! Eva has you covered. It’s not salience. She writes “Black respondents were about 50% more likely to report having reduced or forgone basic necessities at least one month in the last year in order to afford their energy bill, were about 40% more likely to report having kept the home at an unhealthy temperature at least one month in the last year in order to afford their energy bill, and were about twice as likely to have received a disconnect notice due to inability to pay a bill at least one month in the last year.” This suggests that energy costs are highly salient.
The Implications of the gap
So what do we do? Two things. First, we unleash smart young academics to study the mechanisms behind these observed differences. This can only partially be achieved by sitting behind a computer screen and must involve broader social science research and community engagement. If the underlying causes of the gap can be found, policymakers can attempt to craft solutions.
Second, we think carefully about the implications for price-based policies in particular and how they affect households differently. What we learned from Eva here is that so long as this energy cost inequity persists, any future carbon/energy tax, or other policy that raises energy costs, is likely to increase energy expenditures more for Black households – especially poor ones – than for white households in the same income bin. And that’s just wrong.
Maximilian Auffhammer is the George Pardee Professor of International Sustainable Development at the Energy Institute at Haas, part of the University of California, Berkeley.
This article is published with permission
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