Rising U.S. Income Inequality and Declining Residential Electricity Consumption: Is There a Link?

Abstract After growing steadily for decades, average U.S. household energy consumption began declining in the mid-2000s. Using household-level data from the Residential Energy Consumption Survey and Current Population Survey between 1990 and 2020, we decompose overall changes in per household consumption into three components: average income, cross-household income distribution, and consumption habits, which include energy efficiency. Growth of average income caused consumption to increase by 11%, and rising income inequality reduced consumption by 8%, nearly entirely offsetting the effect of income growth. Changes in habits also reduced consumption. Back-of-the-envelope calculations indicate an unexpected effect of rising income inequality: climate and air quality improvements valued at $9 billion in 2020 due to lower electricity consumption. The results indicate the importance of coordinating policies that address inequality and pollution.