The Green New Deal and the Poor

By Peter Z. Grossman

No area of policy is more prone to panaceas than energy policy. President Jimmy Carter thought if Congress passed his energy program, it would not only solve America’s energy problems, but its economic and moral ones as well.

Yet even Carter never thought of a panacea like the Green New Deal (GND). Its main promoter Representative Alexandria Ocasio-Cortez (D-NY), known popularly by her initials (just like her program) as AOC, has said the multi-trillion-dollar GND would: forestall looming climate catastrophe; forcibly transition the entire $20 trillion U.S. economy from one largely based on the utilization of morally suspect fossil fuels to one using only (100 percent) immaculate carbon-dioxide-free renewables; lead to full employment (which the US has anyway); and “promote justice and equity… repairing historic oppression of indigenous peoples, communities of color, migrant communities, deindustrialized communities, depopulated rural communities, the poor, low-income workers, women, the elderly, the unhoused, people with disabilities, and youth.” And it would be largely accomplished in ten years—completely finished in 30.

Every aspect of the utopian GND can be criticized (and has been) for enormous cost, over-optimism, excessive ambition, scientific and technological ignorance, and extreme naïveté. But given the GND’s social ambitions, it is especially important to highlight one particular point: that is, the people who will most likely be hurt the most by an effort to realize the GND are the very ones who are supposed to be helped the most: the poor, the low-income workers, and (because these are often overlapping categories) the “communities of color.”

Most of America’s relatively poor already suffer from one particular aspect of contemporary poverty: It is called ‘energy poverty’ and it seems especially pertinent in the context of the GND. Energy poverty exists when a family spends more than 10 percent of its income on fuels and electricity.

According to a report from the Department of Energy’s Energy Information Administration (EIA), energy poverty is a problem in America even without the GND. Thirty-one percent of American households are near, or are already over, the energy-poverty threshold. That equates to almost forty million households. More than twenty percent (about 25 million households) report going without some “basic necessities” at least one month each year and two thirds of those say that they go without more often than two months a year. Even more troubling, nearly 13 million households keep their homes at “unhealthy or unsafe” temperatures. Unsurprisingly, a disproportionate number of those reporting energy poverty are African-American or Hispanic.[1]

Of course, if the GND could solve energy poverty in the US, that alone would make it praiseworthy. Undoubtedly, AOC and the GND’s other supporters[2] believe that such a solution will result. According to Mark Z. Jacobson a Stanford professor of engineering, and the leading academic theorist behind the GND, the enormous ramp up of renewable electricity (especially wind and solar), electric vehicle production, and building-efficiency improvements will lower energy costs for all.[3]

But if recent experience is any guide, lower energy costs are not the likely result of enacting the GND. In fact, the opposite is far more probable; energy costs will soar, putting even more households in danger of falling into energy poverty.

European experience is not encouraging. European efforts to force a transition from fossil fuels to renewables has led to large increases in energy costs and to an estimated 50 million energy impoverished. Germany, which has one of the highest penetrations of renewables, especially wind and biomass,[4] has seen residential electricity rates double from 2000. Germans today pay on average the equivalent of $0.36 per kilowatt-hour (kWh) of which about 40 percent, or roughly eleven cents, result from a surcharge for renewables as well as an “ecological tax.” Over 20 percent of Germans are deemed energy poor; literally hundreds of thousands have had electricity shut off at least for a period of time because of inability to pay their bills.

Extrapolating the German case to the US, a $0.11/kWh increase in the average US household electric bill would mean an additional $1316 year. That would equal about 5 percent of the annual threshold poverty income for a family of four ($25,750), which would certainly push those anywhere near the edge of energy poverty over it. Of course, the bottom quintile of households spend less on energy than average; their utility spending is only about 80 percent of the national mean. In other words, the lowest income quintile households would see an average increase in energy expenditures of $944, which would still be for them a serious financial burden.

Even families earning $30,000, a good deal above the poverty line would still be billed for more than many such families—AOC’s low-income workers, for example—can afford. In fact, even those at the median income of African-American households, $41,361, 60 percent above the poverty threshold would face an electric bill for an additional 3 percent of family income. Even at that income level there would have to be stricter family budgeting, probably some “doing without,” and in many cases descent into energy poverty.

It should be noted that the German transition, in progress for 20 years, has not been nearly as extensive or disruptive as the GND promises to be in just the next ten. Costs, especially for delivery of electricity over considerable distances and for the technology to balance and maintain the grid in the face of a massive increase in intermittent power from wind and solar, will be enormous. Utilities will need to raise rates significantly to make up for it.

“Energy poverty” includes other expenditures in addition to electricity, particularly gasoline for transportation. All but 8 percent of American households own a car. Most working families own at least one car, and the average car consumes 656 gallons of gasoline per year at a cost of around $1500. But electricity has greater importance in the context of the GND. One of its features is that all vehicles in 15 to 20 years will be battery-powered—batteries that must be recharged by electricity. The added burden on the system of charging tens of millions of vehicles would be enormous, meaning that the figures used above relating to future household costs of electricity are certainly on the low side.

One can guess what GND proponents would argue in response to this analysis: The GND supposedly will mean, first, that everybody can get a better job and so will be able to afford the increases. Or if not, then second, lower income households will be fully subsidized  

Perhaps. But the far more likely outcome is this: with each step of the GND tens of thousands more American families will face the pain of energy poverty.

[1] It should be noted that the EIA data was compiled in 2015 a year in which energy prices were lower than they are today.

[2] Especially Senator Ed Markey (D-MA) and several of the Democratic presidential aspirants.

[3] Jacobson’s basic technological analysis has been strongly criticized, most notably by Christopher T.M. Clack et al, (2017). “Evaluation of a proposal for reliable low-cost grid power with 100% wind, water, and solar.” PNAS, vol. 114, no. 26, June 27.

[4] Biomass is mainly burning wood pellets, which are produced in the US, Canada and Eastern Europe. It is questionable whether biomass electric generation is carbon neutral or in any sense reduces carbon dioxide emissions, which is presumably the major reason for renewable energy in the first place.

Peter Z. Grossman is the Clarence Efroymson Chair and Professor of Economics (Emeritus) at Butler University. Dr. Grossman received his AB degree in philosophy from Columbia University and his MA and Ph.D. in economics from Washington University in St. Louis, where he was a student of the late Nobel Laureate Douglass C. North. Most of his recent work has been on energy policy. His analytic history of American energy policy, titled U.S. Energy Policy and the Pursuit of Failure, published by the Cambridge University Press in 2013, was widely praised, with one reviewer calling Dr. Grossman “the preeminent historian of American energy policy.”

Dr. Grossman was a regular contributor to the Indianapolis Star from 2000-2007. His work has appeared in the Wall Street Journal, the Christian Science Monitor, the Washington Examiner, the Detroit News and many other publications around the world.