Rising Income Inequality Linked to Declining Average Household Energy Consumption

In the mid-2000s, average electricity consumption per household in the United States began falling after a sustained period of growth. Policymakers and environmental advocates who worked on energy efficiency policies applauded the change of pace, attributing the decline to their work.

But a new paper by scholars at Resources for the Future (RFF), the University of Maryland, and Princeton University examines this trend from a different angle: what if the falling figures weren’t totally related to policy change?

In their new study, the authors ask whether income inequality has contributed to the decline in average US household electricity consumption. They find that rising income inequality between 1990 and 2020 was responsible for a 9 percent drop in average energy consumption per household. The authors predict that the decline is likely because lower-income households must make sacrifices to save money, such as by going without heat or air conditioning.

The researchers find that changing consumption habits, such as using more energy-efficient household goods, caused an additional 10 percent decline. The growth of population centers in the South (a region with a climate that tends to require more electricity for heating and cooling) and an increase in electricity use among wealthy households canceled out some of the reductions created by income inequality and energy efficiency measures.

Less electricity consumption means fewer emissions of greenhouse gases and other pollution, no matter the cause. The researchers calculate that lower-than-expected consumption due to rising income inequality yielded air quality improvements valued at $3.14 billion in 2020.

“Income inequality and reduced energy consumption may reduce air pollution, but income inequality clearly has major costs,” coauthor and RFF Senior Fellow Joshua Linn said. “We calculate the environmental implications of rising income inequality. Policies to reduce income inequality should be cognizant of the fact that they may also increase electricity consumption.”

“Residential electricity consumption accounts for roughly 10 percent of US greenhouse gas emissions,” coauthor and University of Maryland scholar Yueming (Lucy) Qiu said. “Emissions reductions in this sector are critical, but they shouldn’t have to come at the cost of human welfare. Our research goes to show that policies can sometimes be connected in unexpected ways.”

For more, read the paper, “Rising US Income Inequality and Declining Residential Electricity Consumption: Is There a Link?” by RFF Senior Fellow and University of Maryland Professor Joshua Linn, Princeton University Postdoctoral Research Associate Jin Liang, and University of Maryland Associate Professor Yueming (Lucy) Qiu.

For a succinct analysis of the findings, read the related blog post, “Income Inequality is a Key Driver of Decreased Residential Electricity Consumption,” by RFF Research Associate Molly Robertson.