Homeownership Helps Reduce Energy Costs and Carbon Footprint
KELLY O’DONNELL, PH.D. | CHIEF RESEARCH AND POLICY OFFICER, HOMEWISE
Renters, low-income renters in particular, are heavily burdened by volatile and increasing energy costs. With more control over the energy efficiency of their homes and appliances and greater access to public subsidies for energy efficient home improvements, homeowners are better able than renters to manage their energy costs and minimize their carbon footprints.
The energy that powers our homes is growing more expensive (Figure 1), and we all experience the sting when our utility bills spike, but for low-and moderate-income (LMI) households energy costs can be a major financial burden. For families already living paycheck-to-paycheck and struggling to afford sky-rocketing rents, keeping up with gas and electric bills can mean painful trade-offs, like spending less on food or foregoing needed healthcare. As our climate becomes more extreme and unpredictable, so too will the burden of household energy costs.
Residential energy – the electricity and gas that powers our furnaces, water heaters, dryers and stoves - accounts for roughly 20 percent of US greenhouse gas (GHG) emissions. (1) (2) This means that in addition to the burden of high energy costs, people residing in energy-inefficient homes are contributing excess carbon to the atmosphere, hastening climate change.
One way to measure the impact of household energy costs on quality of life is to examine energy expenses relative to income. Household energy burden is the percentage of a household’s income that is devoted to heating, cooling and otherwise powering the home. Households that spend more than 6 percent of income on energy are considered “energy cost burdened.” In New Mexico, 36 percent of renters and 22 percent of homeowners are energy cost burdened. (3)
Not surprisingly, the burden of energy costs decreases with income. The U.S. Department of Energy estimates that the average energy burden for low-income households in the U.S. is three times higher than the burden experienced by more prosperous households. (4) Figure 2 shows median energy burden in New Mexico by income as a percentage of area median income (AMI). Households with income below 80 percent of the area median ($54,000 for a family of four) are considered low-or moderate-income (LMI) for purposes of federal housing subsidies. In New Mexico, 26.5 percent of all households and 59 percent of LMI households are energy cost burdened.
Figure 3 shows the median household energy burden by income relative to AMI and housing tenure for households residing in single family detached homes in New Mexico. The median household energy burden across all income groups is 3 percent for homeowners and 4 percent for renters.
Figure 4 shows median household energy burdens for renters and owners of single family detached homes in New Mexico by geographic region. (5) In all but two of the 17 areas depicted, the median energy burden of renters exceeds that of owners.
Low-income owners and renters are both burdened by high energy costs, but renters are much worse off, regardless of their home’s size. One reason for the difference in energy burden has to do with the type of energy used. Figure 5 shows primary heating fuels for New Mexico renters and owners by income. Renters are more likely than owners to rely on electric resistance appliances, like space heaters, for heating and much less likely to utilize wood or solar. Renters are also much more likely than owners to go without heat entirely.
At this point in the discussion it is important to clearly differentiate between old style electric heaters and the newer, far more efficient, heat pump technologies. Electricity is not a fuel like natural gas or wood, it is an energy carrier produced through the conversion of energy. The energy from which electricity is generated can come from a variety of sources including wind and solar as well as heat produced by the burning of fuels like natural gas and coal. Electricity typically moves from the plant at which it is generated to homes through a network of transmission and distribution lines. Once it arrives at the point of consumption, electrical energy is again converted, this time to light, heat, and the energy that powers household appliances. There are two broad types of electric heating for homes: electric resistance and heat pump. Anyone who has used a toaster oven or an electric space heater has experienced electric resistance heating. Electric resistance heat converts electricity to heat at a one-to-one ratio: 1 KWH of
electricity produces an equivalent amount of heat (3,412 BTU). Heat pumps, in contrast, are much more efficient, converting 1 KWH of electrical energy to 3 to 5 times as much heat. Heat pumps are rapidly gaining in popularity, but they remain costly.
The electric heat reported by respondents to the 2017 through 2021 Censuses (Figure 5) was almost certainly electric resistance heat. It is also worth noting that the climate impacts of either form of electric heat are determined by the fuel from which the electricity was originally generated. Even the highest efficiency heat pump will contribute to global warming if fossil fuels like coal and natural gas were used to generate the electricity it uses. As New Mexico retires its coal plants and comes to rely more heavily on electricity supplied by wind and solar, the carbon footprint of all electric appliances will decline.
Differences in primary heating fuel impact the distribution of household energy burden (Figure 6). Researchers at Rewiring America estimate that New Mexico households that currently heat with propane or electric resistance appliances could save an average of $385/year by switching to modern electric heat pumps and water heaters. (6) Figure 6 shows that among households residing in single family detached homes in New Mexico, renters have higher energy burdens than owners, regardless of primary heating fuel.
Renters pay more for energy than owners because they have much less control over the fuels they use and the energy efficiency of their homes. Figure 7 shows that rental homes in New Mexico are considerably older, on average, than owner-occupied homes. Older homes weren’t designed with energy efficiency in mind and thus use significantly more energy per square foot than newer ones. (7)
The problem is one of incentives: typically, landlords cover water and trash pickup, but tenants pay for their own gas and electric utilities. Landlords have far less incentive than homeowners to pay for energy efficient upgrades because they aren’t the ones paying the energy bills. Renters, in turn, may want more efficient appliances, better insulation, or a smaller carbon footprint, but rarely have the resources or the desire to fund improvements to someone else’s property. The split incentive problem can also contribute to health disparities between owners and renters because many energy efficient upgrades also improve indoor air quality, safety and comfort.
Public subsidies also contribute to the differential in household energy burdens because homeowners can benefit from publicly-funded home energy incentives – like state and federal tax preferences for installing rooftop solar or making energy efficient home improvements - that aren’t available to renters.
CONCLUSION
Acknowledging the role that split incentives play in hindering the drive toward a more energy-efficient and climate-resilient housing stock, policymakers have started to include renters in energy efficiency incentive programs. In New Mexico, efforts to help renters participate in the movement toward electrification and energy efficiency include implementation of Community Solar, which enables electric utility customers who can’t access rooftop solar to offset monthly energy consumption by purchasing shares in a solar facility or array. (8) Upfront rebates for energy-efficient appliances included in 2022’s Inflation Reduction Act will be another important resource for renters if and when the State takes the steps necessary to implement the federally funded program. (9) These and other initiatives are important steps in the right direction, but the reality is that homeowners still have far more opportunities and far greater incentive than renters to invest in home improvements and technologies that minimize their energy consumption and their carbon footprint
Notes
(1) US Energy Information Administration, Monthly energy review-September 2019, (DOE/EIA‐0035[2019/9], US Energy Information Administration, Washington, DC, 2019).
(2) Rewiring America (2021, June) Bringing Infrastructure Home. A 50-State Report on U.S. Home Electrification. Retrieved from: https://www.rewiringamerica.org/policy/bringing-infrastructure-home-report
(3) U.S Census 2021 5-yr American Community Survey accessed via iPUMS
(4) U.S Department of Energy. The Low-Income Energy Affordability Data (LEAD) Tool Retrieved from: https://www.energy.gov/scep/slsc/low-income-energy-affordability-data-lead-tool
(5) The regions depicted are Census Public Use Microdata Areas (PUMAs) areas of roughly 100,000 residents defined and utilized by the US Census Bureau for statistical purposes.
(6) Rewiring America (2021, June) Bringing Infrastructure Home. A 50-State Report on U.S. Home Electrification. Retrieved from: https://www.rewiringamerica.org/policy/bringing-infrastructure-home-report
(8) New Mexico Public Regulation Commission. What is Community Solar? https://www.prc.nm.gov/utilities/community-solar/
(9) Office of State and Community Energy Programs. Home Energy Rebate Programs Home Energy Rebates Frequently Asked Questions. US Department of Energy. Retrieved from: https://www.energy.gov/scep/home-energy-rebates-frequently-asked-questions#:~:text=The%20Inflation%20Reduction%20Act%20of,to%20as%20Home%20Efficiency%20Rebates).