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Climate change action during uneven recovery risks leaving low-income people behind

A year ago, almost all of us were grappling with the unknowns of the pandemic. Today, some of us are doing just fine, while others are still reeling.

Why it matters: This split-screen economy, called a K-shaped recovery, highlights the risk facing politicians, including President Biden, as they rally around bold climate action. If new climate laws aren’t inclusive of those less well off in America and around the world, they risk exacerbating inequality.

The big picture: In a K-shaped recovery, the arm of the K represents higher income people who can work from home and shield themselves from the pandemic’s health and economic harm relatively easily. In fact, the wealth of those on the K’s arm has been growing over the past year as the stock market grew.

  • The leg of the K is comprised of blue-collar workers, small business owners and the half of the U.S. population that isn't invested in the stock market.
“Any change in the world is going to be harder on the people who are already exposed and vulnerable. So, the trick is to make sure they benefit, if not equitably, at least proportional to the benefits of the energy transition.”
Carlos Martín, senior fellow at The Urban Institute

Where it stands: Climate change is an especially dire threat to people on the K’s legs.

Society’s efforts to transition to clean energy and the impacts of a warming world both disproportionately impact poorer people in America and abroad.

  • Lower-income people spend a larger amount of their paychecks on heating, electricity and transportation. This is especially so in Black and Hispanic communities, where poverty rates are higher.
  • Lower-income people are also less financially able to respond to or move away from places that climate change is making hotter, drier or more at risk of extreme weather.

How it works: To tackle climate change, you must either make clean energy cheaper or fossil fuels more expensive — or both.

  • Oil, natural gas and coal have been powering our economy for decades and make up 80% of our global energy consumption (a figure that’s barely budged in 30 years).
  • They’re plentiful and made cheap by government subsides here and abroad. They’re also the main reason our planet is heating up.
  • Therefore, any action we take to tackle climate change is, by default, going to raise energy costs — which means those who are least able to afford it will shoulder the brunt of those costs unless policymakers work to reduce the impact.
  • For the past few decades, the U.S. government has primarily tackled climate change by subsidizing cleaner energy, which absorbs and eventually lowers technology costs while shielding consumers.

The intrigue: The Biden administration is leading with that in its $2 trillion infrastructure push on Capitol Hill, with a large chunk of spending going toward climate and clean energy. Such an approach could shield consumers from higher costs.

  • Several subsidy policies Congress is considering, forms of which are included in Biden’s package, could curb power-sector emissions up to 76% below 2005 levels by 2031, according to a recent analysis by research firm Rhodium Group.
  • The “federal investment shifts the cost of decarbonization from ratepayers to the federal government, resulting in negligible changes in bills even when regulations add costs to the electric system,” states the report.

Biden’s infrastructure plan seeks to shield lower-income people from the default regressivity of climate policy in numerous ways, but two of the biggest are through electric-car incentives and a new program called the Clean Energy and Sustainability Accelerator.

  • The plan proposes investing $174 billion in electric cars and charging infrastructure, including giving consumers point-of-sale rebates (on top of expanded tax incentives) to buy American-made electric vehicles.
  • This is key to attract lower-income buyers. Although the lifetime cost of owning an electric car may be lower than its gasoline counterpart, the sticker price remains higher, dissuading lower-income drivers, says Scott Hardman, a researcher at the Institute of Transportation Studies at the University of California Davis.
  • The accelerator program would spend $27 billion in government money on mobilizing private investment into clean energy and retrofitting buildings with a “particular focus on disadvantaged communities that have not yet benefited from clean energy investments,” according to a White House fact sheet.

Yes, but: Biden’s plan also includes a clean electricity standard that supports his goal of a carbon-free electricity sector in 14 years (natural gas and coal currently comprise nearly 60% of the mix).

  • Standards, carbon taxes and regulations are by default regressive, hitting lower-income households harder than others unless explicit steps are taken to counteract that.
  • Kevin Rennert, a fellow at think tank Resources For The Future, says although such a mandate in isolation could raise electricity costs, the additional spending included in the package could offset increases.

What we’re watching: Biden’s electricity standard faces long odds against passing Congress, but at least some of his clean energy spending measures could muster congressional approval.

Editor's note: Amy Harder is vice president of publishing at Breakthrough Energy, a network of investment vehicles, philanthropic programs, policy advocacy, and other activities committed to scaling the technologies needed to reach net-zero emissions by 2050. She is launching a new journalism initiative there. Previously full time at Axios, Amy is now writing her Harder Line column monthly as an outside contributor.

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