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: