How Much Does Energy Really Cost?

U.S. consumers spend about 7.3 percent of their annual incomes on energy. But that’s not the whole story.

In 2014, the United States took first and second place in a ranking of nations by the Energy Information Administration: We’re the world’s No. 1 consumer of petroleum and natural gas; we’re No. 2 when it comes to coal and electricity.

Yet the average U.S. consumer spends only about 7.3 percent of his or her annual income on energy costs. Using this number as a jumping off point, WalletHub released a study last month comparing the utility bills and gas expenditures of every U.S. state, as well as Washington, D.C., which they calculated through a rather complicated equation:

(Average Monthly Consumption of Electricity * Average Retail Price of Electricity) + (Average Monthly Consumption of Natural Gas * Average Natural Gas Residential Prices) + (Average Monthly Consumption of Home Heating Oil * Average Home Heating Oil Residential Prices) + (Average Fuel Price * (Miles Traveled/Average Motor-Fuel Consumption/Number of Drivers in the State)) = Average Monthly Energy Bill

But when we talk about energy use in America, we’re not getting the whole picture if we only think about the kind that we directly purchase, even though it’s the “easiest to tally,” as explained by UC-San Diego physicist Tom Murphy. Most of us are fairly aware of how much electricity or natural gas we’re consuming at home—we might even try to use CFL lightbulbs, or make sure our thermostats are set at a responsible temperature. And personal transportation is pretty easy to wrap our minds around. According to Murphy, “The average American household uses about 1,050 gallons of gasoline each year to move their personal vehicles around.” In a general sense, we’re all aware that commuting by foot, bike, or bus brings that number down.

But for all we think about how much a gallon of gas costs, or how high our heating bill is come wintertime, the bulk of American energy consumption doesn’t even take place in our homes or cars. That becomes startlingly clear when you look at the “winner” of WalletHub’s study: Washington, D.C. Our nation’s capital ranked lowest for total energy costs per month at only $223. But, per capita, the District of Columbia consumes more energy than one-third of all other states.

How is that possible? It’s not as easy as saying that energy there is cheap. It’s because residents (and tourists) aren’t paying for the energy they use the most—the kind they access when they’re out of the house, taking advantage of the air conditioning or lighting when they’re visiting shops, museums, and monuments. According to the U.S. Energy Information Administration, “In 2014, 76 percent of retail electricity sales in the District of Columbia went to the commercial sector, and only 2 percent went to the industrial sector, reflecting the District of Columbia's large concentration of government buildings and museums as well as other commercial activity.”

When we limit our perception of our energy use to what we can be billed for, it becomes easier to ignore how reliable our region’s infrastructure is, or even the average hours of sunlight a building gets per day—and whether it’s absorbing that extra heat, or turning it into energy via solar panels. Any one of these factors could catapult our consumption levels in either direction. It’s also necessary for us to be mindful of what the Washington Post has called the “social costs” of consuming energy. Sure, they’re not as easy to tally, but their consequences can have significant impacts on the general public, because they so vastly increase the rate of pollution and even public health.

A coal power station in Florida. Image via user Wknight94 from Wikimedia Commons.

Coal, for example, which accounts for 45 percent of America’s electricity use, is our nation’s cheapest source of energy. But working conditions in coal plants have been blamed for thousands of deaths, and hundreds of thousands of illnesses. The real “cost” here is shorter lives—or, if you really want to quantify it, higher medical bills. If we were to include these things in the equation that determines how much we pay for our energy, our coal consumption rates would increase from 3.2 cents per kilowatt hour to 8.8 cents per kilowatt hour, ultimately making coal more expensive than wind or nuclear power.

WalletHub’s ranking was positioned as a relocation guide for the energy-conscious consumer. (If you’re curious, Connecticut’s in last place, at $410 a month.) But without considering all the moving parts of energy usage and living costs, it provides only a partial picture of an area’s true energy expenses.

It doesn’t have to be hard to reduce our dependence on energy at home. Murphy, for one, has stopped taking frequent showers. The Natural Resources Defense Council (NRDC) and the United States Environmental Protection Agency (EPA) suggest looking for Energy Star products to replace common power-sucking appliances like refrigerators and washing machines. The NRDC also offers device-based guidance, advising us to turn things off and unplug them when not in use. The EPA says to consider switching to a ground-source heat pump and light-color roofing.

Perhaps more importantly, we can be more demanding about the places we spend most of our money and time. At the office, we should try to encourage a switch to LED lights; we can frequent museums that make use of rooftop gardens or solar panels to off-set their energy usage. We can vote with our dollars and with our behavior. Such strategies should be able to reduce our consumption—and our reliance on unsustainable energy practices—substantially.

Illustration by Brian Hurst

Center for American Progress Action Fund

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