What is energy equity and why is it so important?

“Energy equity” looks like a cross between a concept of financial engineering and a new social rights program like Medicare. But for us, it’s a concept we expect the energy industry to hear more about, as it involves real economic and social concerns. Fundamentally, this term “energy equity”, and the advocates who employ it, say that all members of society should be able to afford and have access to an amount of energy necessary or basic for ordinary life. This doesn’t mean generous subsidized energy allowances, but enough to keep the apartment warm in the winter, cool in the summer, provide hot water, keep the lights on and, of course, all appliances fully charged. No big deal you tell me? Think differently. Classical economists would say that people who cannot afford a product can reduce their consumption to make the purchase within budget, or reduce consumption of something else in order to pay for the product. But energy is both price and income inelastic, which means consumers can’t adjust demand as easily, and that’s a necessity, too. For example, if the prices of electricity for heating are extremely high in a cold December, it is not good for consumers to know that electricity will be plentiful and cheap in April. Almost everyone needs a minimum of energy, regardless of price or income level. As we stated earlier, accessing and enjoying the benefits of electricity is almost the definition of what it means to live and participate in modern society. In other words, if someone today cannot afford the electric bill, even for the heating, it is prudent to keep the heating (or summer cooling) on ​​and deal with the financial consequences. later.

Either way, what’s the real problem? Total energy expenditure is probably 7-8% of the median family budget. Of this, electricity represents 2% and natural gas 1% on average, the rest being for gasoline. So even if electricity prices go up, as they have, that increase is probably just a financial inconvenience for most families.

But while families in the median income group are unlikely to grapple with rising energy costs, families in the lowest income quintile spend almost 18% (almost a fifth) of their income. family income to energy. In other words, families in the bottom economic quintile used about half the energy of the median family, but they only earned a fifth. The picture is worse when we consider only the consumption of electricity and natural gas, which are real necessities. Families in the bottom quintile, who earn 20% of median family income, consume only a third less electricity and gas per family. They do not have much room to reduce their consumption, as a large part of the consumption of electricity and gas is for uses such as space heating, refrigeration, air conditioning and others. basic necessities. Getting rid of the wall-mounted flat screen and game console doesn’t make much of a difference.

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Over the past several decades, energy prices have risen slowly, inflation has been low, and high-income families have enjoyed rapid income growth, while those in low-income groups have made little progress. If the country enters a period of inflation, higher energy prices (which we believe are necessary to attract new sources of production) and no improvement in the incomes earned by low-income families, we could we end up with a political backlash against energy companies.

The State of California offers an interesting lesson this week on precisely this type of fairness problem. The state’s PUC was revising its net metering policy which had provided fairly generous grants to early adopters who invested in residential rooftop solar power. But now, according to the utilities, these subsidies are distorting and hurting their income. Interestingly, the state’s Consumer Advocate, which partly focuses on the concerns of the less well off, aligned itself with the top three investor-owned utilities to end the generous net metering policy of the State. The result was a new fixed charge of $ 8 / kw for residential rooftop solar power owners, which amounts to approximately $ 1,000 per year, as well as a reduced rate for the resale of electricity to the roof. network. Needless to say, California solar energy advocates are furious. The state is proposing to end a subsidy for middle and upper income residential solar customers while seeking to redistribute some of these benefits to those who are economically less well off. The new ‘grid participation fee’ is designed to ‘capture the fair share of the costs of residential adopters to maintain the grid and fund utility programs’.

Ending a grant is the financial equivalent of pulling off a bandage, painful but rarely serious. But what’s most interesting here is that the PUC state’s new policy is punitive enough to provide economic incentives for its residential solar PV utility customers to install batteries and leave the grid altogether. . If a large number of rooftop solar plant owners choose to ‘cut the cord’ and leave the grid, they will no longer contribute to grid maintenance at all and these fixed costs will need to be shared among utility customers. remaining audiences. This is the economic logic behind the so-called death spiral of utilities: the high fixed costs of utilities must be distributed among an ever smaller number of customers. If California regulators are aware of this concern, clearly they don’t care. Right now, their concern seems to be energy equity.

We don’t know where energy equity will go, overall, but it’s hard to see politicians ignore the issue on either side of the political spectrum. The price goes up. A significant portion of the population is stuck when buying a basic commodity. California has chosen to end a subsidy to the better-off in order to relieve pressure on consumers’ balance. Other politicians might want to limit prices, which will affect supply, or subsidize low-income consumers. But politicians who oppose price caps also generally oppose consumer subsidies. So what about producer subsidies to reduce prices? Lobbyists are undoubtedly thinking about alternatives. Look at the problem. Energy equity will not go away.

By Leonard S Hyman and William I Tilles for Oil chauffage

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