Consuming Energy While Black
Black households’ energy expenditures are significantly higher than white households’.
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. Black Americans pay higher mortgage rates for identical homes, are more likely to get arrested, imprisoned, and die at the hands of the police to name just a few examples.
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 neighborhoods? 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 favorite possible mechanism – differences in energy efficiency. She uses EIA’s Residential Energy Consumption Survey (RECS) survey, 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 neighborhoods, yet Eva shows this isn’t true either. If anything Black households report a slightly higher frequency of audits. So now the energy efficiency – behavioral 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.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
Suggested citation: Auffhammer, Maximilian. “Consuming Energy While Black” Energy Institute Blog, UC Berkeley, June 22, 2020, https://energyathaas.wordpress.com/2020/06/22/consuming-energy-while-black/
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Maximilian Auffhammer View All
Maximilian Auffhammer is the George Pardee Professor of International Sustainable Development at the University of California Berkeley. His fields of expertise are environmental and energy economics, with a specific focus on the impacts and regulation of climate change and air pollution.
Energy Institute Blog 
Gene-
Way back when (2006) my local permitting organization encouraged residential PV. The permit process was very straightforward, the fees were minimal ($250 bucks) and the cycle time for approving documentation was under 24 hours!
PG&E’s approval process on the other hand was SLOW. It took about 4 weeks during a heat wave for them to sign off on our system after they got all the paperwork. I am not familiar with the permit fees these days, but when I looked into adding some panels a few years back with or without back up capabilities the deception (1) of the firms, AND NGO’s, pitching alternatives brought to mind the buyer beware warnings on evaluating new technologies when rate designs are changing (2).
Thanks for the link to your site as I found the frequency article/post insightful!
1) https://journals.sagepub.com/doi/abs/10.1177/1532440020925723?journalCode=spaa
2) https://issues.org/post-normal-science-for-pandemic-recovery/#
Energy cost in dollars is one measure but what about energy use in kWh or btu?
Could black people just be being ripped iff by utility companies in the same way banks are ripping thrm off for mortgages?
No, utility tariffs are standardized and everyone is on the same rate schedules. And the effect size is too large for mechanisms where there is some agency (i.e., someone calls in and asks if a late fee can be waived) to be the primary cause. It has to be caused by differences in electricity usage (or mistakes in the analysis).
Thanks for that reply.
In the UK our competitive energy market allows you to choose who you sells you your energy (even though it’s the same wholesale supplier) and tariffs vary massively.
It’s common for some groups to be on much higher tariffs than others – a case in point is that I am changing provider this week and dropping my gas price by 25% – but I can convert from ft3 to m3 to kWh to £ (or $) – and I monitor my usage so I can avail of the best deal.
Not everyone does that.
Maximilian, the fact that black- and Hispanic-owned homes are less likely to install solar panels, and sell their extra electricity back to the grid at retail rates, might have something to do with it. In most NERC subregions in the U.S., they’re cross-subsidizing more affluent, white homeowners – paying more than their fair share for grid maintenance and administrative expenses of utilities, on which both groups depend for a reliable supply of electricity:
“A study recently published in Nature Sustainability highlights the fact that communities of color are also disproportionately missing out on the benefits of rooftop solar power.”
“Led by Deborah Sunter, an engineering professor at Tufts University, the research team found that black- and Hispanic-majority census tracts have much lower rates of adopting rooftop photovoltaics (PV) than majority-white or no-majority tracts. Sunter’s team used data from Google’s Project Sunroof, which uses machine learning and satellite imagery to track existing rooftop solar arrays around the country, and from the Census Bureau’s 2009–2013 American Community Survey. The Google data included some 60 million roofs and 2 million solar installations.”
“‘[We found that] African American- and Hispanic-majority communities are installing less solar, even at the same household income and rate of homeownership than white-majority communities and communities that don’t have a single majority,’ Sunter said.'”
Solar Power Benefits Aren’t Reaching Communities of Color
https://grist.org/article/solar-power-benefits-arent-reaching-communities-of-color/
Refusing to participate in cross subsidies is a very odd explanation for low participation rates.
The most straight forward explanation is that Black households have about one-tenth of the wealth held by White households (and Latinos are similarly depressed). These households are much less likely to own their homes. They don’t control the decision to install solar panels; landlords do. This is a classic agency problem where tenants could benefit but landlords don’t act on it because they don’t see much of that benefit themselves.
“Refusing to participate in cross subsidies is a very odd explanation for low participation rates.”
I have no idea what point you’re trying to make. Minority customers likely don’t know they’re cross-subsidizing white customers.
“The most straight forward explanation is that Black households have about one-tenth of the wealth held by White households..”
That’s been accounted for:
“‘..even at the same household income and rate of homeownership than white-majority communities…”
Please read my post before responding. Better yet, read the study – this one’s free.
You seem to make a point that these households are refusing to accept the program payments. You should clarify what you actually mean then.
Income and wealth are not the same, even if they are correlated. The disparity in household wealth is much larger than in income, so holding income constant isn’t sufficient.
It might be revealing to see energy consumption by activity. For instance, cooking energy could be one that may be culturally different between the races and what happens when other races are also controlled for?
I look forward to reading the final paper!
Sudatta Ray
Here in Austin Tx rich folks can install solar panels to lower their bills. But the rules Austin imposes are only good if you have a large home and are rich. Poor folks are left out because we do not have a low cost way for poorer families to install their own solar panels. The reason for a higher cost of solar panels in the US is described here:
https://www.greentechmedia.com/articles/read/how-to-halve-the-cost-of-residential-solar-in-the-us
Thanks for your post pointing out some reasons low income folks pay more.
Dr Gene Preston
https://egpreston.com