Residential electrification can save American households $96 billion through reduced energy costs if lower-income households electrify alongside higher-income ones, according to a new American Council for an Energy-Efficient Economy (ACEEE) report. If policymakers do not invest in helping low- and moderate-income (LMI) households electrify and they are left behind in the energy transition, these households could face increased costs, the study finds.
The study models the costs and benefits to LMI households and society at large of efficient electrification of residential space heating, water heating, and other equipment, including upgrading electric resistance heating to electric heat pumps. Read the ReportThe report considers two scenarios: an LMI last pathway, in which LMI homes would not electrify until after all other homes, and an LMI prioritized pathway, in which all homes would electrify in order from highest life-cycle savings to highest life-cycle costs, which would require support for LMI electrification. In the LMI prioritized pathway, about 80% of LMI homes would be included by the time 75% of U.S. residential heating energy electrified—i.e., space heating, water heating, cooking, clothes drying—versus about half of LMI homes in the LMI last pathway.
Analyzing the costs of installing and operating efficient electric equipment compared to continuing to use fossil fuel and electric resistance equipment, the report finds that achieving electrification of 75% of U.S. residential energy usage would produce:
- $96 billion in net cost savings over the 2024–2050 period through reduced utility bills if we ensure that the most cost-effective homes are electrified, including those that are LMI, but a net cost increase of $88 billion if LMI households are left behind
- For LMI households specifically, utility bill savings totaling $120 billion if equitable electrification is prioritized. If not, LMI household energy costs could increase $64 billion.
Supporting LMI electrification leads to greater savings because it enables more homes that are cost-effective to electrify to do so. LMI households can be among the most cost-effective because they are more likely than higher-income households to be burdened by high energy costs and to have inefficient systems, such as electric resistance heating. However, absent policies and programs, these households may generally electrify last, because of upfront costs and because they are more likely to rent their homes than higher-income households.
Analyzing the medical care and other costs associated with health conditions worsened by outdoor air pollution, and the economic impacts of carbon emissions, the report finds that prioritizing equitable electrification would lead to $2 trillion in societal benefits from 2024 to 2050. State and local policymakers can use the report’s methodology to incorporate societal impacts into cost-effectiveness testing for efficiency programs, which typically consider only energy costs and upfront investments.
“The upfront price of electrifying can be prohibitive for low-income households, but the benefits of helping these homes go electric dwarf the costs,” said Lyla Fadali, senior researcher at ACEEE and lead author of the report. “If we don’t invest in energy upgrades in lower-income homes, we risk both higher energy costs and real impacts on human lives from air pollution and climate change, like having a family member hospitalized or a home being flooded.”
The report finds that the societal benefits of electrifying LMI households are greatest in the Midwest and Northeast because of these regions’ reliance on fossil fuels for heating during cold winters—including oil, which is particularly polluting. However, electrification can be the most expensive in these regions, making policy to support LMI household electrification especially important.
To maximize utility bill savings and societal benefits, electrification policy and programs should target water heating and space heating first, the report recommends. Based on equipment and energy costs alone, water heating is often the most cost-effective end-use to electrify. Electrifying space heating generally has the most significant societal benefit per household, except in the South and West, where electrifying water heating tends to provide the greatest benefits.
Although homes using gas are generally costlier to electrify, once a home electrifies gas water heating and space heating, there is a significant economic benefit to disconnecting from the gas utility altogether, the report finds. Additionally, because the cost of gas will increase for remaining customers as others electrify, financial support to help LMI households using gas electrify in the near term will likely be needed to protect these customers from rising bills.
The report calculates the total cost of installing efficient electric equipment in all LMI households to be about $625 billion, about one-third as much as the societal economic benefits of electrification. The Inflation Reduction Act provides funding to begin the transition of LMI households from fossil fuels to efficient electric alternatives, but ensuring the full societal benefits of equitable electrification requires greater investment.
To develop the report’s model of electrification’s costs and benefits, ACEEE used data on more than 18,000 U.S. homes from the U.S. Energy Information Administration’s 2020 Residential Energy Consumption Survey. To avoid speculating on the future performance and costs of equipment, the analyses assume equipment replaced starting in 2024 and over the following decades operates until 2050, a period of operation sometimes longer than the typical life expectancy.