The Value of Prioritizing Equitable, Efficient Building Electrification

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Key Findings Prioritizing equitable building electrification—where low- and moderate-income (LMI) households have the support they need to replace fossil fuel and electric resistance equipment when higher-income homes are electrifying—ensures that historically disinvested communities will not be left behind in the energy transition. 75% residential electrification produces $96 billion in net cost savings (including both retrofit costs and energy cost savings compared to the status quo) over the 2024–2050 analysis period if LMI households are included but a net cost increase of $88 billion without equitable electrification. The societal benefits of electrification dwarf the costs in either scenario, but prioritizing equitable electrification maximizes societal benefits: $2 trillion over the analysis period compared to $1.8 trillion without equitable electrification.  Prioritizing equitable electrification reduces LMI household energy burden—the percentage of income spent on energy: At a 50% electrification rate overall, the average energy burden for very low-income households drops from 9% to just over 6% but increases to 10.5% when these homes are excluded. At 75% residential electrification, LMI household utility bill savings total $120 billion if equitable electrification is prioritized. If not, LMI household energy costs could increase $64 billion. The benefits of electrifying LMI households are highest in the Midwest and Northeast; however, this is also where it is most expensive at the household level and most likely to require policies focused on supporting LMI household electrification. We recommend electrifying water heating first, as it is often the most cost-effective end use to electrify (based on equipment and energy costs alone).  Electrifying space heating has the most significant societal benefit per household, but there are regional differences, with greater benefits from electrifying water heating in the South and West, on average.  Combining an energy efficiency retrofit with electrification can lower household life-cycle costs in cold climates (above about 6,000 heating degree days).  As gas prices for remaining customers will increase as others electrify, LMI households using gas are likely to require financial support to electrify in the near term to avoid increasing energy burdens.

Electrifying current fossil fuel appliances and equipment is the primary proven strategy to decarbonize space heating, water heating, and other common home energy needs as the grid becomes cleaner. Heat pumps and other efficient electric technologies can reduce energy costs for many households—including those currently using costly to operate electric resistance equipment—and are likely to be the least-cost approach to fully decarbonize most homes (Nadel and Fadali 2022). However, upfront retrofit costs have made efficiency upgrades more difficult for lower-income households, with research showing that disinvested areas are often underserved by utility programs designed to overcome these hurdles (Dewey 2023).

New programs and incentives stemming from the 2022 Inflation Reduction Act (IRA) will target lower-income households but are in their early stages; program administrators need guidance to prioritize outreach and investments. In practice, achieving equitable electrification will likely require a combination of targeted programs, policies, and public investments that prioritize LMI households’ access to low-carbon technologies. 

Quantifying the broad societal benefits of equitable electrification requires analyses to go beyond cost-effectiveness calculations that typically consider only energy costs and upfront investments. Policymakers can use the methodology and detailed model underlying this report to incorporate the positive health and societal economic impacts of electrification into cost-effectiveness analyses. This study should therefore be a resource to states and localities that are moving toward residential electrification but have so far not factored societal or health impacts into cost-benefit analyses.

This study systematically analyzes the costs and benefits to LMI households and to society at large of efficient electrification, including both installation and operation of residential space heating, water heating, and other equipment. We consider upgrading electric resistance equipment to electric heat pumps as well as replacing fossil fuel equipment. This analysis updates and builds off an earlier analysis of residential decarbonization (Nadel and Fadali 2022).[1] In addition, we quantify economic benefits of reducing climate-harming emissions and avoiding adverse health impacts stemming from related outdoor air pollution.[2] We present results for LMI households based on a range of characteristics, including income, region, current fuels, existing equipment, and home type; the underlying analysis includes many additional dimensions, including home size, annual energy usage, fuel expenditures, climate, and regional electricity grid emissions. 

While the analysis presented in this report shows the significant nationwide benefits of electrifying U.S. homes, we do not evaluate whether current policy or markets will produce such an outcome. Rather, we examine the impacts of prioritizing equitable electrification in high electrification scenarios, demonstrating quantitatively that failing to do so will increase the costs required to decarbonize homes across the United States while also missing cost-effective opportunities to reduce energy burdens in LMI households. 

While the $4.5 billion in the IRA’s High Efficiency, Electric Home Rebate Program marks an important down payment, we compute the total cost of installing efficient electric equipment in all LMI households to be about $625 billion. This is a seemingly large investment, but the societal benefits of electrifying 75% of all U.S. homes would be three times this number.

Electrification policy and programs should target space heating and water heating, and avoid an outsized focus on other appliances, like gas stoves and clothes dryers. That said, to advance broader electrification, programs could potentially approach electrification in phases and highlight the household cost savings of disconnecting from gas service altogether once heating retrofits are complete. 

Programs should aim to fill the gap between the household costs and societal benefits of LMI household electrification, particularly in homes using natural gas. Programs converting natural gas systems to electric heat pumps may need new rate designs (Yim and Subramanian 2023), increased home heating assistance, and/or greater public investments in LMI gas-to-heat pump retrofits to reduce energy burdens in service of the broader societal benefits. 

Effective planning and policy are needed now to address the challenge of natural gas conversions in LMI households, potentially including incorporating the value of such conversions into emerging clean heat standards. A price on carbon could also reflect the value of converting gas systems and assist in guiding policy and planning. Electrifying LMI households using gas must be prioritized now—and supported financially as needed to reduce energy burdens—so that households left on the gas system when gas prices spike are only those able to invest in cost-effective upgrades when they choose.

We also investigated a scenario that included both electrification and energy efficiency retrofits. This analysis did not change our overall findings at a national level. However, we did find that combining an energy efficiency retrofit with electrification can lower household life-cycle costs for electrification in cold climates (above approximately 6,000 heating degree days, or roughly the climate of Pittsburgh, Pennsylvania, and colder). This analysis is limited to household energy costs, and we do not quantify important benefits of envelope upgrades such as improved comfort or benefits to the electric grid, both of which could motivate envelope upgrades in more moderate climates (and provide additional motivation in cold climates).

The analytical findings of this report are complemented by input from community-based organizations (CBOs), who highlighted the importance of non-energy factors at both individual and community levels related to electrification and energy efficiency that are not easily quantified. Considering these factors will be important to ensuring benefits accrue to their communities. In reviewing our findings, ACEEE’s Equity Working Group—a group of representatives from CBOs and others from LMI communities that ACEEE convenes to inform our research and policy work—noted the particular importance of coupling energy-efficient electrification with improving the resilience of energy systems in communities that have historically had less reliable services. It is therefore essential that electrification be part of an overall energy transition strategy that includes consideration of climate impacts, health impacts, and service reliability. 

In multifamily buildings with existing central heating and hot-water systems, electrification can potentially shift utility costs from owners to renters, so tenant protections are also important. Some electrification programs require envelope upgrades before heat pumps can be installed, and while our analysis indicates this can have substantial benefits, it can present another financial barrier to an efficient electrification retrofit. Overall, the biggest challenge to LMI households is vastly inadequate funding.

The model and methodology underlying this report can be applied to specific states and to the full range of household characteristics in the underlying data set from the Energy Information Administration, such as householder race and measures of energy insecurity. Further developing the model into a technical assistance tool—and incorporating additional data sources, such as Census Bureau survey data and state and local databases—would provide policymakers and program administrators with actionable information for shaping programs that most effectively deploy limited resources. In addition to modeling efforts such as the one in this report, there is a need to systematically assess what policy and program approaches are successful in electrifying LMI households in the field when the traditional cost-benefit analysis does not work in their favor or when upfront costs are prohibitive.

This study shows that the benefits of the energy transition can be maximized by centering LMI households. Utility program designers and policymakers at all levels need support in realizing those benefits across all communities.

 

Suggested Citation

Fadali, Lyla, Michael Waite, and Paul Mooney. 2024. The Value of Decarbonizing Equitable, Efficient Building Electrification. Washington, DC: ACEEE. www.aceee.org/research-report/b2405.

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Homes and Multifamily Buildings Low-Income Energy Efficiency Programs Energy Equity