Article

Clean Energy Will Lower Household Energy Costs

Investments in clean electricity, electrification, and efficiency will save the average household $500 annually in reduced energy costs.

Dusk settles over wind turbines in the Tehachapi Mountains on February 16, 2021, in Rosamond, California. (Getty/Los Angeles Times/Gina Ferazzi)
Dusk settles over wind turbines in the Tehachapi Mountains on February 16, 2021, in Rosamond, California. (Getty/Los Angeles Times/Gina Ferazzi)

Fossil fuels are driving up consumer energy costs, in part as a result of the industry’s exposure to the very climate disruptions it is continuing to worsen. These rising costs are yet another great reason to invest in clean energy now. Yet in a darkly ironic twist, fuel prices have been used as an excuse to delay the popular Build Back Better Act, despite the fact that its investments in clean energy are the ideal response to high fossil fuel costs.

Indeed, investing in clean energy would directly reduce household energy costs by an average of $500 per year, protect the economy from volatile fossil fuel markets, and slow the pace of climate disruption.

Fossil fuels are increasing consumer costs

The consumer price index (CPI) has been making headlines in recent months, leading to arguments about inflation risks and avoiding new federal spending even if it is fully paid for. Such claims allow transitory price changes to obscure deeper questions of affordability and ignore the value of the federal investments themselves in promoting economic growth.

Abstract discussions of inflation miss another important detail: the degree to which price changes in general are being driven by specific changes in energy prices. As the U.S. Bureau of Labor Statistics reports, energy costs contributed more to the increase in consumer prices this past month than did any other category—with energy up 25 percent but all other items excluding food up only 4 percent. For four months in a row, energy prices have pushed up the CPI.

Sen. Joe Manchin (D-WV) seemed to reference this recently when he said, “We are in the middle of an energy crisis.” However, it is important to examine what is causing the increase in energy cost—unsurprisingly, it involves climate change—as well as what can be done to protect consumers: investing in clean energy.

Fossil fuels are volatile and costly in many ways—for our pocketbooks, for our health, and for our climate.

In a typical year, the cost of fossil fuel constitutes roughly three-quarters of all energy expenditures. Indeed, in 2019, the most recent year reported, the U.S. economy spent $25 billion on coal, $150 billion on natural gas, and $700 billion on petroleum, which amounted to 72 percent of all energy expenditures. Since then, the price of natural gas per million British thermal units of energy has more than doubled, from $2.05 to more than $5.50, and the price of crude oil has risen by a third, from $61 per barrel to more than $80 per barrel. This has driven the CPI for energy up 16 percent since January 2020 and, more recently, up 36 percent since the COVID-19-era minimum in May 2021.

Energy costs can present a significant financial hardship for households, causing some families to take out high-interest short-term loans to pay their bills, face having their utilities disconnected, and risk using hazardous space heaters or ovens for heat. In the past year, more than a quarter of low-income households—including disproportionate shares of Black and Hispanic households—reported that they were unable to pay all of their energy bills.

Policymakers must support these households with direct financial assistance and by examining the root causes of fossil fuel price volatility.

The fossil fuel industry is vulnerable to extreme weather

One of the major reasons why fossil fuel prices have been rising is the industry’s vulnerability to extreme weather. Even as fossil fuels continue to contribute to climate change, the industry is taking a beating from erratic arctic weather patterns in the winter, extreme heat in the summer, and stronger hurricanes—all stressors that are being exacerbated by climate change.

So far this year, 18 major weather and climate disasters have killed 538 people and cost more than $100 billion in damages in the United States. It should perhaps come as little surprise, then, that these disasters rank as some of the most significant events cited by the federal government’s analysts as influencing energy costs this year:

  • In February 2021, the arctic cold front that reached Texas cut natural gas production in half across Texas, Oklahoma, and Louisiana. This loss of fuel supply knocked out 357 natural gas power plants in Texas, the Southwest, and the Midwest. Another 247 natural gas power plants were interrupted by freezing or other issues on-site. The staff of the Federal Energy Regulatory Commission found that, taken together, problems with natural gas supply and power plants caused the majority of the power outages that left Texas with half the power it needed.
  • The Energy Information Administration (EIA) found that “largely as a result of more electricity consumption in June due to hot weather,” high summer demand for natural gas has reduced storage inventories heading into winter, which means prices in the coming months will remain volatile and sensitive to winter temperatures.
  • At the end of August, “Hurricane Ida led producers to close more than 90% of natural gas and crude oil production capacity in the Gulf of Mexico region as the storm approached,” a significant setback that caused EIA to raise forecasted natural gas prices 16 percent nationwide through the end of the year and predict upward pressure on gasoline prices.

The forecast for this winter is for high fossil fuel prices to continue. If fossil fuels no longer deliver in the extreme cold nor deliver in the extreme heat, it is time to stop relying on them so exclusively. It is also time to stop pushing the weather to ever greater extremes.

Fossil fuel dependence is a global problem

There are many political actors who use the increase in fossil fuel prices to argue for greater production of fossil fuels. Some falsely try to pin higher fuel prices on federal drilling policies, despite the fact that the Biden administration has continued approving new oil and gas drilling permits at a steady pace. Others argue that the Keystone XL (KXL) pipeline cancelation is responsible for the higher gasoline prices, even though KXL was projected to raise gasoline prices in the Midwest by piping oil more directly across the United States and into global trade.

Yet the inconvenient situation that the proponents of drilling must face is that domestic oil production supplies a global market for oil. Changes in U.S. production affect aggregate global supply, not just domestic supply, which is why domestic prices remain subject to the influence of the Organization of the Petroleum Exporting Countries (OPEC) and Vladimir Putin’s regime in Russia, even after many years of increased drilling in the United States. In fact, in 2015, the oil industry won the right to export its domestically produced oil, reaching record-high levels of crude oil exports just before COVID-19 struck.

With the advent of liquefied natural gas, natural gas is increasingly becoming a global commodity, as well. Since the fossil fuel industry began exporting liquefied natural gas in 2016, exports have grown substantially. Last week, even in the face of price volatility and low inventories, industry exported 19 percent of U.S. natural gas—part of a consistent trend. Drilling our way to higher export volumes would offer little relief for U.S. consumers.

While the oil and gas industry has long used the specter of high energy prices to argue for policies to subsidize production and boost supply, it’s a much better idea to invest in clean energy alternatives that would ease the demand for fossil fuels. After all, price is a function of both supply and demand; in the face of high fossil fuel prices, clean energy investments would cut emissions and consumer costs in a single stroke.

Clean energy saves households cash

Fortunately, clean energy is ever more affordable. In fact, it’s now cheaper to build a new solar or wind project than to continue operating most of the existing coal-fired power plants in the United States. Driving an electric car, meanwhile, costs less than half as much per mile as driving a gasoline-powered car. Even before natural gas prices rose, there were more than 100 million households that would save hundreds of dollars every month after switching from a fossil fuel furnace or from an outdated resistance heater to an electric heat pump.

Households that switch to electric vehicles and electric appliances will win big, especially as the tax incentives and grant programs of the Build Back Better agenda provide financial support to reduce upfront purchase costs, freeing households to enjoy the ongoing operational savings. But it is important to note that this broader shift will also benefit the households that continue to use fossil fuels. As large segments of the population switch to electric vehicles, there will be fewer cars pulling up to the pump and demand for gasoline will drop. Moreover, as the electricity grid begins to demand less from fossil fuel power plants, natural gas prices will drop across all sectors of the economy, saving money for those households and businesses that still pay gas bills.

A recent report from the Rhodium Group analyzed the combined effects of the Build Back Better agenda, potential actions of the states that have been leading on climate, and an aggressive timetable for implementation of the Clean Air Act and other bedrock environmental laws. The report found that, thanks principally to the proposed investments in clean electricity, electrification, and energy efficiency, the average household would save $500 annually in reduced energy costs.

Conclusion

Sometimes the simplest answer is the correct one. Fossil fuels are volatile and costly in many ways—for our pocketbooks, for our health, and for our climate. It’s past time to embrace clean energy instead.

Trevor Higgins is the senior director of Domestic Climate and Energy Policy at the Center for American Progress.

The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.

Authors

Trevor Higgins

Senior Director, Domestic Climate and Energy

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