Climate change legislation is expected with the Obama administration, and measures to mitigate its effects on low income families are anticipated. On February 19, the Center on Budget and Policy Priorities published a brief describing why utility companies are ill-suited to deliver relief for low income families facing rising energy costs. This report reviews how climate policy could affect fuel prices for low income families and pros and cons of a climate rebate for families versus a tax credit channeled through the utility companies.
The Center finds that a modest 15% reduction in greenhouse gas emissions would cost the poorest fifth of Americans approximately $750 a year per household. Without relief, these increased costs could force millions of households into poverty.
Climate legislation is therefore expected to include some type of program to mitigate the impact of higher costs on lower income families. The report concludes that a rebate, which would directly compensate the families for their loss of purchasing power due to the increased cost of energy, should be preferred to giving funds to local utility companies to disburse, as has been proposed by some industry groups and policymakers. According to the authors, funding the utility companies directly would create multiple problems: the companies lack information on which customers are low income, and the companies would be focused on electricity costs as opposed to all energy costs a household has. In addition, having the utility companies distribute the funds would mask the true size of a families’ energy usage, meaning households would be less likely to seek energy efficiency improvements. Further, the report suggests that the federal government would have difficulties in dividing funds among the utility companies in an equitable manner, and oversight by bureaucratic institutions would be likely to be uneven.
The report argues that a direct consumer rebate is the better solution, making it easier to deliver the benefits with fewer administrative costs by using the existing debit system and federal tax code.
The report, Why Utilities are not Well-Suited to Deliver Relief to Low- and Moderate-Income Consumers in a Climate Bill, can be found here: http://www.cbpp.org/2-19-09climate.pdf.