The Hidden Climate Tax: How Climate Change Increases Energy Demand and Costs For Society

This study demonstrates how climate change is already driving large increases in electricity demand and total electricity costs. This occurs due to two things: hotter temperatures drive higher demand (mainly for cooling) and, as demand rises, price-setting mechanisms in the energy market increase the per-unit price. Thus, consumers are hit double: they must buy more electricity, and each unit of electricity costs more. Using the ERCOT energy market, results show that, compared to a 1950-1980 baseline climate, electricity demand in 2023 was 2.0 GW (4.1%) higher because of the extreme temperatures of that year — climate change contributed 45% of this increase, with the rest coming from short-term climate variability. Using data from the ERCOT wholesale market, we estimate that the total cost of electricity (the combination of higher demand and higher per-unit prices) increased by $295 per ERCOT customer, with most of this increase occurring during the summer. Climate change contributed about 28% of this ($2.2B, $83 per customer), while short-term variability contributed the other 72%. This is a regressive "climate tax" that all ERCOT customers must pay.