Most Americans go about their everyday lives without worrying about the cost of energy. To them, flipping a light switch does not mean skipping a meal or cancelling a trip to the doctor. Approximately one third of U.S. households are energy insecure. In some cases, the cost of energy becomes extremely burdensome. Energy burden is the state in which a high proportion of income must be devoted towards energy utilities; the American Council for an Energy-Efficient Economy estimates an individual household’s energy burden through the proportion between utility spending and gross household income (Figure 1). One in five U.S. households must sacrifice their basic necessities to meet their energy needs. This high energy burden disproportionately impacts the poor, decreasing their disposable income and worsening their overall living conditions and health, contributing to the phenomenon of cyclical poverty.
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Households in higher income brackets only spend 2.3% of their income on costs related to energy utilities. On the other end, low-income households spend roughly 7% of their household income on utilities, about three times that of their wealthier counterparts. Part of this disparity is due to the differences in household income, but that is not the only contributing factor. Low-income households pay more per square foot for energy than the average household. What is the root cause?
A why-why diagram and duncker diagram were created to further explore the initial problem statement that the cost of energy is disproportionately burdensome to low-income households.
Between 2004 and 2016 homeownership rates for those in lower-income brackets has declined nearly 10%, and the majority of low-income households rent.[3] Renting, specifically the relationship between the tenant and the landlord, poses a significant challenge to energy efficiency due to the split incentive between the parties. Neither the landlord nor the tenant has the incentive to upgrade the rental homes to be more energy efficient. The landlords will not invest in their own properties because there is not a financial motivation. Demand for housing is already so high because of the housing crisis in Charlottesville, so property owners do not have to worry about filling up their rentals. Renters can’t make the improvements because they can’t afford the high upfront cost or legally modify their rental. Another layer of complexity is added by the way that energy is billed. Certain complexes don’t submeter, and electricity is billed by simply taking the usage of the entire building and dividing it by the number of residents in the building. Even if residents were able to afford and make the necessary changes, they might only ever see a fraction of the savings. Improving energy efficiencies will provide savings in the long run, but residents can’t be sure that they’ll ever see those savings, either due to the volatility of the housing market or the billing of energy.
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Many buildings are energy inefficient simply due to their age. Insulation, lighting, and many other integral housing components have become more efficient with time. Older homes spend more on energy, and 56% of the homes in Charlottesville were built before 1970(furthered explored in the next section). Part of the responsibility to mitigate the cost of energy falls on those actually constructing the homes. Methods such as passive design architecture can make these buildings more efficient from the start. It is easier to build a house correctly from the start than to make an old home sustainable. Including the other many negative externalities, inefficient homes are bad for the environment. According to the EPA, buildings consume 68% of the nation’s produced electricity and produce 38% of the carbon dioxide emissions in the United States (EPA). Constructing homes that are more energy efficient and taking measures to conserve energy consumption can mitigate socioeconomic inequality and benefit the environment.
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For low-income homeowners, only 35% of energy burden could be eliminated by bring the efficiency of their household up to the median level. Thus, there are other factors that must contribute to the disproportionate cost of energy, mainly awareness of and accessibility to government resources and energy conservation programs. There is a lack of consolidation of information regarding energy efficiency and housing programs in Charlottesville. There exist several government programs and resources to learn more about improving energy efficiency; however, this information is disorganized and scattered across multiple websites, making it hard for Charlottesville residents to learn about and use these programs.
Thus, the problem essentially condenses to two components: overcoming the split incentive dilemma for low-income renters and increasing accessibility to government resources and energy conservation measures for low-income homeowners.
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Learn More About Energy Burden
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