Why rich people use so much more energy

It’s mainly all the traveling, says a comprehensive new study.

Here’s a simple and important fact for the fight against climate change: Wealthy people consume more energy and, consequently, are responsible for more greenhouse gas emissions than less wealthy people. And as income and wealth inequality have risen across the world for the past 40 years, the wealthy have consumed more and more relative to their numbers. Energy inequality has increased alongside income inequality.

But the precise nature of the relationship between income and energy inequality has remained somewhat fuzzy, with lots of studies being done within countries, or between countries, but few studies that draw on a comprehensive global dataset. Without that broad international overview, it has been difficult to get a clear picture of energy inequality, and thus, develop effective climate and energy policy in response.

A new paper in Nature Energy, from researchers at the University of Leeds, has filled that gap, drawing on two large data sources: the global consumption database (GCD) of the World Bank and Eurostat household budget surveys. Feeding that data into a model, they derived several fascinating conclusions.

The study began by calculating the total energy footprint — including indirect energy use, i.e., the energy “embodied” in materials — of a wide range goods and services. It examined who buys those services, and how that changes as income rises.

And it calculated the products’ “income elasticity of demand,” which has to do with how demand for a good or service changes as income changes. Say income falls by 1 percent. How much does demand for the product fall? If demand falls exactly 1 percent, the income elasticity of demand is 1. If demand falls more than 1 percent, elasticity is greater than 1; economists deem this a “luxury good.” If demand falls less than 1 percent, elasticity is lower than 1; economists deem this a “basic good.”

Basic goods are the things we can’t or won’t buy much less of, even if our income falls. Luxury goods are the things we buy more of as we get wealthier.

The study seeks to understand which goods and services are most energy intensive, which are basic and which are luxury goods, and how the distribution of those goods and services changes as incomes rise.

It ran the analysis for 374 population segments in 86 countries and tracked every category of consumer goods and services, allowing for an extraordinarily broad apples-to-apples comparison of income and energy consumption across the world.

So, what did it find? In a nutshell, as people get wealthier, they spend more on transport (cars, boats, planes, vacations), which is one of the most energy intensive consumer categories. Because wealthier people turn to more energy intensive goods, the energy gap rises even faster than the income gap. This suggests important policy lessons, including some on how the US ought to respond to Covid-19.

Let’s look at the conclusions, then we’ll ponder the policy implications.

The energy intensive goods and services rich people like

With energy intensity as one axis and income elasticity as the other, it is possible to plot goods and services on a basic two-by-two chart, with four quadrants: basic low intensity, basic high intensity, luxury low intensity, and luxury high intensity:

Nature Energy

There’s plenty to pull from this graph, but two things seem particularly relevant for policy.

One is that heat and electricity comprise an unusual category, at once large, unusually energy intensive, and unusually income inelastic. Even poorer people can’t afford to buy much less of them; conversely, there’s only so much heat and electricity a person can use, even with a bigger house.

The second is that, with the exception of appliances, the upper right-hand quadrant — energy intensive luxury goods — is filled with movement: vehicles, vehicle fuel, flying, and holidays. The most energy intensive thing that wealthier people do is move around more, in cars, ships, and planes.

With that in mind, let’s look at the two charts below. On the left is energy footprints plotted against income (“expenditure”). It shows a familiar fact, that people’s energy footprints rise alongside their income in “sublinear” (not quite one-to-one) fashion. As people get wealthier, they use more energy, but the effect is less pronounced at the upper end of the income scale.

But the chart on the right peers a little closer and finds that energy footprint inequality rises in superlinear fashion relative to income inequality — which is to say, as income inequality rises, energy footprint inequality rises even faster.

Nature Energy

Why would this be true?

Well, we saw it in the first chart. As people get wealthier, they do not simply buy more of what they bought when they had less. They start buying different kinds of things, luxury goods, and it turns out that the most common luxury good (traveling around more) is more energy intensive than most basic goods.

To get a sense of just how stark energy inequality is, and in what categories it is concentrated, check out this table (a higher gini coefficient means more inequality):

Nature Energy

The top 10 percent of the global income spectrum consumes 20 times as much final energy as the bottom 10 percent.

The numbers are particularly striking for transport, where the top 10 percent consumes 187 times as much in vehicle fuel and operation as the bottom 10 percent. “In land transport, the bottom 50% receive a bit more than 10% of the energy used,” says the report, “and in air transport they make use of less than 5%.” Conversely, the top 10 percent uses around 45 percent of land transport energy and 75 percent of air transport energy. As Boeing’s CEO noted in 2017, celebrating his company’s endless growth potential, somewhere around 80 percent of people in the world have never flown.

The biggest category of basic goods (heat and electricity) and most luxury goods (especially transport) use lots of energy. What does this mean for climate and energy policy?

The implications of energy inequality for climate change policy

The study projects energy use through mid-century and finds that, without energy efficiency improvements, “energy footprints would double by 2030, and more than triple by 2050, with half of the increase occurring in India and China.” With rising incomes, more spending will shift from basic goods to luxury goods, especially transport, which at least at the moment is primarily powered by fossil fuels. And that could be a disaster for the climate.

As I see it, there are at least three policy implications in this work.

First, as climate hawks have been saying for years, energy efficiency is vital to decarbonization. Final energy demand simply cannot be allowed to rise as much as it is now projected; it will overwhelm efforts to substitute cleaner technologies for their fossil fuel counterparts. Efficiency can help reduce the need for heat and electricity, which can save (especially low-income) renters and homeowners significant money and help make the category both less energy intensive and more income elastic.

Second, remember the two big yellow bubbles on the first chart, heat and electricity and vehicle fuel. Together, they represent around two-thirds of global greenhouse gas emissions. And they can be decarbonized with the same strategy, namely, electrify everything: shift all electricity generation to carbon-free sources and then shift as much heat and transportation as possible over to electricity.

Shutterstock

Electrification will reduce carbon emissions in the biggest category of energy intensive spending done by everyone (heat and electricity), and the biggest category of energy intensive spending done by the upper income (vehicle fuel).

But because heat and electricity represent a basic good, it is not appropriate to address them with pricing mechanisms like taxes, which tend to be regressive and hit the poor the hardest. Performance standards and large-scale public investments are better suited. Vehicle fuel, because it is a luxury good, is a better target for pricing.

However, this still leaves the problem that many of the energy uses in the upper right-hand quadrant — the energy intensive luxury goods, mostly having to do with transport — are difficult to decarbonize. In particular, air and ship travel (and thus package vacations) are a bear to address. Even light-vehicle travel, for which decarbonization strategies are straightforward, will take time to decarbonize. And climate models show that we don’t have much time.

This logic leads ineluctably to a third policy conclusion: The only way to decarbonize many of the most energy intensive goods and services fast enough is for wealthy people to change their behavior and consume less of them.

Broadly speaking, there are two ways to accomplish this. The first is by reducing overall income inequality with, say, progressive income taxes or wealth taxes. Since income inequality produces a whole host of other problems, beyond disproportionate consumption of energy intensive good and services, this seems like a promising approach.

The second is to reduce energy inequality within particular categories. This can be done with targeted taxation — for example, a tax on first-class flying, cruises and yachts, vacation packages, or other energy intensive luxury goods. It can also be done with rezoning, densification, public and multimodal transportation, and other policies that reduce the need for energy intensive single-occupant-vehicle travel.

The problem is, in a political system dominated by the wealthy, there is little appetite for taxes on the habits of the wealthy. “The climate issue is framed by us high emitters — the politicians, business people, journalists, academics,” climate scientist Kevin Anderson told the BBC. “When we say there’s no appetite for higher taxes on flying, we mean we don’t want to fly less.”

“Covid-19 gives a pointer as to the scale of disruption away from our norms” that would be required to adequately address climate change, Anderson told me, “but for such different reasons and only over a (hoped) short term.”

Not that the Covid-19 response inspires much hope either. President Trump’s instincts are to protect precisely those energy intensive goods and services mostly enjoyed by the wealthy. “Airlines would be No. 1,” he said about a coronavirus bailout. He has also mentioned hotels and cruise ships.

“Our results highlight how our government’s economic priorities have worsened the Covid-19 crisis,” Dr. Julia Steinberger told me. She’s a professor at Leeds, a co-author on the study, and the leader of the Living Well Within Limits project. “There has been a reluctance, since the start [of the crisis], to curb the flying habits of the richest populations, leading to the disease spreading internationally by air travel.”

The lifestyles of the affluent should not be the first thing on our minds at a time of threat and disruption. The response to coronavirus should primarily be targeted at the most vulnerable, through direct financial support and help with heating and electricity bills.

Insofar as the virus has suppressed the kinds of energy intensive luxury activities enjoyed by wealthier countries and individuals, perhaps it is a good time to step back and reassess, in an age of climate crisis, how necessary those activities are to quality of life, what degree of social license they warrant, and how the world’s luckier, wealthier inhabitants might be steered away from them.