When Environmental Regulation Harms the Poor

Zoning regulations and occupational licensing aren’t the only regulations with regressive impacts. A new study circulated by National Bureau of Economic Research (NBER) suggests building energy codes hurt the poor, too. The NBER report focuses on California, but most states adopted statewide building energy codes decades ago. As a result, regressive impacts may be widespread.

Building energy codes regulate a home’s energy footprint, and they are often justified by concerns about energy-related environmental externalities. But well-intentioned objectives don’t insulate the public from trade-offs.

The NBER study looks at impacts on home characteristics, energy use, and housing prices. In all three categories, the impact of residential energy codes is negative for those in the lowest income quintiles.

For example, stricter energy codes were associated with a decline in home values for low-income households of 8-12 percent. Stricter codes reduced the number of bedrooms and square footage of homes in the lowest income households by 4-6 percent. On the other hand, home values increased and changes to square footage and number of bedrooms were minimal for wealthier households.

For some environmental advocates, the distributional consequences may still be justified if energy codes reduced energy use. But the authors state there is “debate about the extent to which building energy codes reduce energy use at all.” The study finds no signficiant reduction in energy use per square foot, although it does find energy reduction on a per-dwelling basis but only in the second lowest-income quintile. 

This suggests energy codes do not meet even their own stated objectives. Energy codes provide another example of how various political objectives – including protecting the environment – unavoidably require trade-offs. Often the costs of regulation are borne by the poor.