Alms for the Rich

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

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.

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.

The worst part is, members of the middle class are already losing terrifically every time they go to the gas pump. In 2011 Americans will shell out more for gasoline than ever before: in excess of $490 billion. That’s about the size of the entire trade deficit. Worse, the difference in this year’s gas bill versus last year’s is about $100 billion—or roughly the size of the middle-class tax cut the president is trying to pass. Ethanol subsidies are a slow bleed—costing the average person $30 a year—but this year in families in South Dakota spent nearly $450 filling their gas tanks in the month of April alone, an increase of $120 from a year before.

For the past year I’ve been interviewing middle-class Americans about how they’ve dealt with rising prices for the Energy Trap, a project that is trying to understand how Americans cope with gas prices. A survey we did found that the cars of the lower middle class are significantly less efficient than those of the well-off, need more repairs, and are driven farther to work. In interviews, people told me how they made ends meet: taking on an extra job so they could pay just to get to their full time jobs, skipping meals, taking the kids out of sports and private school. Some of their short-term attempts to keep gas in the tank are expensive in the long term: putting gas on a credit card with 19 percent interest, or skipping asthma medication and landing in the ER.

Our whole system of “drive till you qualify” mortgages, expensive credit for used-car purchases, and few transportation options leaves the middle class making hard choices to keep paying for gas without getting a break. Take the example of Warren Buffett and his secretary: Buffett reportedly drives a Cadillac DTS, which the government estimates will use $2,861 in gas this year. It may well be that his supposed secretary drives a 2005 Ford Expedition, which will use $3,674 in gas this year. (“Econoboxes” were once the used car of the struggling worker, but recently, used-car prices have gotten perverse: When gas prices rise, the prices of used SUVs and other less efficient cars drop.) But Buffett, of course, can trade his DTS in for a similarly priced Chevy Volt, , lower his gas bill to as little as $648 a year, and receive a tax credit of $7,500. Meanwhile, his secretary, bless her heart, underwrites Warren’s snazzy commute, hopes her Expedition doesn’t break down, and curses the unfairness of it all. (These stats are from the U.S. government’s fuel economy website.)

Green products and technology need government support. We’ve given so much to high-carbon fuels and infrastructure that they have a built-in advantage, but we can’t afford to depend upon them in the future. If we want to give green energy real political legs, policymakers need to be sure that the middle class gets some of the green goodies that can save money: more efficient vehicles, household solar panels or water heaters, energy-efficiency upgrades. In fact, making sure that there’s a middle class market for these goods is part of actually building a strong U.S. green industry—in much the way we built markets for cars, for houses after World War II, and even for home appliances. It’s actually a lot easier to build smart policies than it is to build a killer electric car or a scalable biofuel. But for some reason, we’re not doing it.