For most Americans the answer is “Not much.” Here’s why.
Last weekend I read the report “Politics Without Winners CAN EITHER PARTY BUILD A MAJORITY COALITION?” by Ruy Teixeira and Yuval Levin of the center-right think tank American Enterprise Institute (AEI). The Executive Summary begins by noting that “In the American political system, the parties’ purpose is to form enduring national coalitions. Look at almost any point in American history, and you will find a majority party working to sustain a complex coalition and a minority party hoping to recapture the majority. Today, however, American politics features two minority parties, and neither seems interested in building a national coalition.” It then goes on to analyze how a majority party might arise.
In doing so, in the short section “Energy Realism” (pp. 39-41), it addresses how Americans view the challenge of climate change and what must be done to address it. In this section it discusses survey findings where respondents were asked how much they would pay on top of their monthly utility bill to combat climate change. The increments were $1, $10, $20, and $75 dollars. At a mere $1 only seven percent of respondents were more willing to pay this than not. Twice as many political independents opposed this charge than supported it. Support from the working class was less than for those with a college education where there was a 20 point difference.
Margins widened at $10. Working class respondents opposed this by 30 points and moderates and independents by 20 points. “Raising the proposed levy to combat climate change to $20 a month appeared to reach a breaking point.” The spread for the working class and moderates widened to 40 points and to 50 points for independents. Even the college educated opposed this by 20 points. At $75 dollars support almost completely disappeared. “In fact, even liberal white college graduates couldn’t bring themselves to vote in favor of a $75 levy.”
These findings caught my eye, so I decided to put these absolute numbers into context. I first wondered how these numbers compare to monthly utility bills. “Monthly Utility Costs in the U.S. by State” by Ana Durrani on Forbes.com reports average bills for energy, water, natural gas, and Internet. From the World Population Review I got data on average income by state. From these data I created tables for the top five richest (Table 1) and bottom five poorest (Table 2) states. Electricity and natural gas are energy costs, so I excluded water.
These tables reveal three patterns. The first is that there isn’t much difference between electricity and natural gas bills between the richest and poorest states. Second, because of the substantial difference between average incomes, those in poorer states pay a higher percentage of their income for energy than those in rich states, although the difference is not that dramatic. Third, there is no difference in Internet charges.
These numbers enable us to see the effects of paying for climate change as a percent of utility costs. The average utility bill is about $200 per month. So $1 is only a 0.5% increase in the utility bill, not really noticeable. $5 is 2.5% so beginning to be noticeable, $10 is a clearly noticeable 5%, and $20 is a very noticeable 10%. $75 is a crushing 37.5%.
However, these averages obscure an important fact which is that low income people endure a much higher “energy burden” (cost of fuel for utilities and transportation) than those with more means. According to the American Council for an Energy-Efficient Economy (ACEEE), low income households spend on average 17.8% of their income on home energy bills and fuel transportation, three times the national average. About half of this is home energy. The ACEEE defines a high energy burden as equal to or more than 6% and a severe energy burden as equal to or greater than 10% of income. According to the U.S. Department of Agriculture Economic Research Service, families in the bottom income quintile spend around 31.2% of their income on food. So fuel and food take up nearly half of their income. (Those in the top quintile spend only 8.0% and 2.0% or less for fuel, a total of 10% or less.) It is clear that lower income households can face real choices between energy and food, both of which can have high price volatility which makes planning even more difficult.
Averages also obscure the fact that there is great variation in income in the U.S. Table 3 reports Americans’ self-class identification based on a Gallup poll. The Census Bureau reports 2022 data on income ranges by quintile, which I’ve matched to class identification and took a point estimate average for each class. The estimated average income for those in the upper class is nearly 17 times that in the lower class.
The obvious result is vast variation in what percentage of annual income would go for fees to combat climate change. At $1 per month ($12 per year) this ranges from a mere 0.08% for the lower class to an infinitesimal 0.00048% for the upper class. At $75 per month ($900 per year) it is a burdensome 6.0% for those in the lower class and a noticeable 2.0% for the lower middle class, these two comprising 46% of the U.S. population. At 0.36% it is a rounding error for the upper class.
So what do these numbers mean? I draw two broad conclusions. The first is that for a large percentage of Americans (nearly half) paying fees to combat climate change is a luxury good they can’t afford to pay. The second is that even those who can afford it at the $75 level are unwilling to do so.
This isn’t to say that Americans don’t care about climate change. Perhaps they do but they don’t want to pay directly themselves to address this problem and are expecting the government or corporations to bear this burden. Even then it will come back to consumers, in the case of government, in the form of higher taxes or less benefits elsewhere. In the case of corporations, it will come back in the form of higher prices on goods and services.
Which gets us to the question of what government policies and corporate actions—and I’d like to add those in the investment community—will be most effective and receive sufficiently broad support from American consumers to be implemented. In my next piece I will discuss this based on the AEI report and data from a recent Pew survey on climate change.
