Policies Meant To Promote Alternative Energies Are Hurting the Middle Class

What's to come?
Oct. 17 2011 11:40 AM

Alms for the Rich

How policies meant to promote alternative energies are actually hurting the middle class.

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Tax credits are available for solar panels and electric cars, but not every middle-class consumer can afford them

Photograph by Getty Images.

This article arises from Future Tense, a collaboration among Arizona State University, the New America Foundation, and Slate. Future Tense explores the ways emerging technologies affect society, policy, and culture. On Oct. 19, you’re invited to join us for a Future Tense event in Washington, D.C., about the next era of energy. For more information and to RSVP for “What Will Turn Us On in 2030?,” visit the New America Foundation’s website.

Bashing green energy has recently become a major Republican talking point. Darrell Issa, once a champion of green-job stimulus funds for his district, held a House oversight committee hearing titled “How Obama’s Green Energy Agenda Is Killing Jobs.” Rush Limbaugh says green energy is a “slush fund” that takes money from unwitting taxpayers under the guise of saving the planet and rewards Democratic donors. It’s tempting to believe that the Republicans are bashing "green" as an elitist boondoggle for the same politically-driven reasons they fought greenhouse-gas regulations—because they have an allegiance to old high-carbon industries. There's more than a grain of truth in that, but it's not all that's going on. With every passing month of high unemployment and declining incomes, green energy becomes more vulnerable to a real a backlash—for very good reasons.

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The very concept of green energy started this decade with high approval ratings from voters. A poll commissioned by the National Renewable Energy Laboratory in 2002 found 89 percent of the people they polled “cared” about using renewable energy. But by 2009, that strong support had fallen to 80 percent, with support from stronger supporters falling by 13 percent. The news from the marketing world on the once magical “green” term is more specific: In April this year, advertising and marketing consultancy Olgivy reported that one-half of Americans think green products are for “Crunchy Granola Hippies” or “Rich Elitist Snobs” rather than “Everyday Americans.” In other words, “Everyday Americans” feel left out of the green party. And from a policy perspective, they are. The green policies put in place by the Bush and Obama administrations are not only not aimed at the middle class; they’re benefitting the wealthy at precisely the moment that high gas prices have slammed the lower middle class.

Consider the flashiest green support for consumers at the moment: tax credits for the purchase of electric cars and solar panels. Buy an electric car (more than $40,000) or a solar array (more than $20,000) and get a tax credit. But most American families making the median income (about $50,000) spend more per year on their old used cars and fuel ($7,900) than they do on taxes ($6,000). So a tax credit effectively steers the taxes they do pay toward those in the upper income brackets. You can also see a similar pattern in the $8 billion the government made available in grants for businesses to install solar, wind, and other upgrades through the 1603 program. Grants were made to 3,590 businesses ranging from a few thousand dollars to $170 million, but they are biased toward business owners who are comfortable enough to apply for a large grant, rather than toward struggling mom-and-pop businesses. At the other end of the spectrum, the government does a decent job of getting grants out low-income people through its $5 billion Weatherization Program, but those are only for people whose incomes are below 200 percent of the poverty level, or $44,100 for a family of four.

So what are those in the middle to do? There was an interesting group of local and state programs called PACE (Property Assessed Clean Energy) that helped homeowners upgrade the efficiency of their home or install solar panels through a low-interest loan that they then paid off through their property taxes. The stimulus bill put aside $150 million to support these programs, which had been authorized in 22 states. But the Federal Housing Finance Agency has shut down the granting of PACE loans for two years for procedural reasons that could be overcome by congressional legislation. So once again, the middle class has lost out. A study by Pike Research showed significant interest in the programs from the middle class, particularly the lower middle class: 62 percent of homeowners who pay more than $200 a month in utility bills expressed interest in the program. In Solano County, Calif., which started a program before it was disallowed, the investments not only lowered energy bills (which freed up disposable income for more local spending); they also created construction jobs in the middle of a downturn. The failure to unblock PACE loans, or more grandly to make energy efficiency upgrades part of a national mortgage restructuring program, is a massive lost opportunity.

Where do these wrongheaded green policies come from? A recent working paper by economists affiliated with the Energy Institute at Haas School of Business at the University of California-Berkeley found a striking pattern: Existing biofuel programs cost everyone a little money but benefit some counties by as much as $6,800 per capita. Legislators were likely to turn down a program that was cheaper and fairer if there was an alternative that benefited their constituents at the expense of others. (And they were handsomely paid by campaign donors for this consideration.) Economists Stephen Holland, Jonathan Hughes, Chris Knittell, and Nathan Parker attribute this bias to a concept called the “private interest theory of regulation”: Through regulation, well-organized private groups capture money at the expense of more dispersed groups. Despite all that we hear about the power of Joe the Plumber and soccer moms, the middle class is a classically “dispersed group,” which seems destined to lose (just a little at a time) with sloppily constructed green policies and never to share in the explicit benefits.

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