working paper

The Economic Benefits of the New Climate Economy in Rural America

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Why Invest in a New Climate Economy for Rural America?

Rural America faces dual challenges from flagging economic vitality, exacerbated by the pandemic, and climate change, which is already affecting rural livelihoods (Hales et al. 2014; see Box 1 for a definition of rural America). Efforts to rebuild resilient rural communities would benefit from strategic federal investment that supports both deep decarbonization and the creation of good-paying jobs (Mulligan et al. 2020; Saha and Jaeger 2020). These investments could help usher in a new climate economy for the United States that would achieve economic growth by dealing with the risks associated with climate change (NCE 2018).

There is increasing interest in rebooting struggling rural communities by making strategic investments in the new climate economy. The Biden administration’s American Jobs Plan would target 40 percent of clean infrastructure investments in disadvantaged communities, which have experienced disproportionate levels of pollution, chronic disinvestment, and lack of access to economic opportunities. Many rural communities are likely to fall into this category. Legislative proposals to invest in rural areas to combat climate change and generate economic opportunities for underserved communities also abound. For example, the Climate Stewardship Act, introduced in the Senate in April 2021, would invest billions of dollars in U.S. Department of Agriculture (USDA) programs to restore trees and native vegetation on working lands while prioritizing investments and job opportunities for disadvantaged communities. The proposed American Jobs in Energy Manufacturing Act of 2021 would incentivize domestic manufacturing of clean energy technologies, with targeted investments in rural communities that have witnessed a decline in manufacturing and traditional energy jobs.

There is also increasing evidence that rural Americans support the new climate economy. In a national survey, 54 percent of rural voters said that taking action on climate change was “very” or “pretty” important, with policies that reduce pollution from power plants, incentivize the contribution that agriculture can make to mitigation, and strengthen rural communities against extreme weather events receiving high levels of support (Bonnie et al. 2020). Despite their support for climate action, however, rural voters report feeling “isolated” from the climate policy conversation and feel that many climate policies do not allow rural areas to benefit.

Federal policymakers need to ensure that rural voices are included in U.S. climate policy discussions. Not only do rural voters and rural states wield significant influence on the outcomes of national elections, but rural America matters a lot to the fate of U.S. climate policy. Farmers, ranchers, and forest owners manage large segments of American lands that hold enormous opportunities for mitigation. Natural and working lands currently remove about 800 megatons of carbon dioxide (MtCO2) per year, or 12 percent of U.S. greenhouse gas (GHG) emissions (EPA 2021), and could remove an additional 540 MtCO2 annually—equal to current emissions from U.S. agriculture—if trees were restored to ecologically suitable lands, primarily in rural areas (Mulligan et al. 2020). Rural areas are also crucial for clean energy development: 99 percent of all onshore wind capacity in the country is located in rural areas, as is the majority of utility-scale solar capacity (Seigner et al. 2021). Rural communities are, therefore, essential to building robust, equitable, and durable climate policies that harness the power of rural America to address climate change.

This paper aims to support rural-centric climate policy discussions by evaluating the potential economic benefits of federal investment in rural America, including benefits that accrue specifically to economically disadvantaged rural communities.

Box 1 | What Is Rural America?

For our analysis, we used Rural-Urban Continuum Codes developed by the U.S. Department of Agriculture Economic Research Service to delineate rural areas. This geographic-economic classification scheme distinguishes between two broad types of regions: metropolitan counties (codes 1–3) and non-metropolitan counties (codes 4–9). Rural areas include everything that falls outside a metropolitan area. By this definition, there were 1,976 rural counties, home to approximately 46 million residents, in 2019.

Rural America is not a monolith. It is increasingly home to a diverse population, with 22 percent of rural population being people of color.a Rural communities also fall along a wide spectrum of economic profiles, with some deeply impoverished and others doing well economically. On average, though, rural communities lag behind their urban counterparts on most key economic indicators, from poverty rates to labor force participation.

Note: a. Junod et al. 2020.

1.1 Declining Economic Opportunities in Rural America

While urban areas are not uniformly prosperous and rural areas are not uniformly poor, rural America as a whole has been slipping behind its urban counterpart for several decades on metrics including income, educational attainment, access to infrastructure, and job growth (Figure 1). As the United States has urbanized, young people and money have flowed to urban areas, where jobs and educational opportunities tend to exist, while the rural workforce has grown older and less able to access lucrative jobs (Andrews and Reiblich 2020). Simultaneously, traditionally rural industries like farming, mining, and manufacturing have seen workforces shrink due to mechanization and globalization. Boom-and-bust cycles and the transition toward low-carbon energy production have also left rural fossil fuel workers and communities with shrinking economic opportunities (Kopparam 2020). The closure of coal-fired power plants, for instance, has adversely impacted local communities, many of which are in rural areas, that rely on coal plants for tax revenues and jobs (Morris et al. 2019). Adding to economic pain, rural wages have stagnated for the past 50 years across all skill levels and demographics (Ziliak 2019).

Figure 1 | Rural Areas Lag Urban Areas across Key Economic Indicators

Source: Economic Innovation Group, Distressed Communities Index, 2020.

Rural households, and particularly low-income households, have higher energy costs, but many cannot afford to invest in energy efficiency upgrades such as weatherization or efficient appliances that can bring savings. Rural households have a median energy burden—percentage of income spent on energy—of 4.4 percent, compared with 3.3 percent for urban households, and low-income households face energy burdens almost three times greater than high-income households (Ross et al. 2018). Electric cooperatives, which serve much of rural America, are often strapped for cash, hindering investment in clean energy programs that can benefit their communities.

In addition, climate change has already begun to affect rural livelihoods. Changing precipitation and temperature patterns are impacting crop growth and distribution of timber species, and these effects are projected to only increase. For rural areas dependent on recreation and tourism, climate change impacts like unpredictable snowfall and sea-level rise harm the resources and activities that draw visitors to the area (Hales et al. 2014). The devastating 2020 wildfire season in the western United States emphasized the increased threat of wildfire that accompanies a hotter, drier climate and endangers rural forest-adjacent communities.

Due in part to existing vulnerabilities, the COVID-19 pandemic has been particularly injurious for the economic health of rural areas. When the pandemic hit in 2020, rural employment had not yet fully recovered from the 2008–09 Great Recession, while urban areas had experienced a 9 percent growth relative to pre-recession levels (Kopparam 2020). The slowdown in economic activity hit some rural areas severely given their higher reliance on industries such as farming, mining, food processing, and tourism, which are highly susceptible to pandemic-induced closures (Mueller et al. 2021). The pandemic has also hit rural communities disproportionately hard in key clean energy employment sectors including efficiency and renewable energy generation, with rural counties shedding more jobs as a share of total employment relative to their urban counterparts (Saha and Cyrs 2021).

Federal support for economic recovery in these communities is now a top priority, especially where these investments can simultaneously address the threat of climate change. Since rural areas tend to have higher poverty rates, have fewer employment opportunities, and be more susceptible to labor market shocks compared with urban areas, federal recovery policies should be designed to address rural communities’ specific challenges and opportunities (Mueller et al. 2021). With state and local governments in many cases experiencing economic shocks in the wake of the pandemic and being forced to cut spending, a failure by the federal government to deliver substantial support to rural communities either directly or through subnational governments risks delaying economic recovery for years to come.

1.1 New Climate Economy Opportunities in Rural America

Investments in the new climate economy are both environmentally and economically sound prospects, with the potential to stimulate job growth and pave the way for long-term economic recovery from the COVID-19 pandemic (Saha and Jaeger 2020; E2 2020). Already, clean energy jobs make up a significant share of total employment in many rural communities (Figure 2), and this trend can be dramatically reinforced and expanded upon during the current decade. By one estimate, 600 gigawatts (GW) of new wind and solar projects projected to be built between 2020 and 2030 could generate US$220 billion in economic benefits, primarily in rural areas, which host 99 percent of onshore wind and a growing share of utility-scale solar projects (Seigner 2021). Energy efficiency improvements can reduce rural households’ energy burdens by 25 percent, representing more than $400 in annual household savings (Ross et al. 2018). Restoration of trees and other natural ecosystems, which are concentrated in rural areas, generated $9.5 billion annually in direct output and an additional $15 billion in indirect spending prior to the pandemic (BenDor et al. 2015).

Figure 2 | Clean Energy Jobs Are a Growing Economic Engine in Rural Counties

Note: As of 2019, clean energy jobs made up as many as 1 in 10 jobs in many rural counties across the country, demonstrating the potential for the sector to be a vital economic engine in a diversity of regions. Energy efficiency represented the largest category, supplying more than 200,000 jobs in rural counties, followed by renewable power generation, which supplied roughly 50,000 jobs in rural counties.

Source: Saha and Cyrs 2021.

Clean energy occupations pay higher wages and pose lower formal educational barriers to entry than most jobs nationwide, offering an inclusive economic opportunity for rural workers (Muro et al. 2019). However, not all clean energy jobs offer higher pay or are more unionized than fossil fuel jobs, so policies must ensure a fair transition for fossil fuel workers and communities adversely impacted by the shift to a low-carbon economy.

Taken together, federal investment opportunities analyzed in this paper can make a meaningful contribution to addressing rural economic distress and the climate crisis. The investments considered here, however, will likely not be sufficient on their own to recruit and train the workforce necessary to implement new climate economy pathways. The policies recommended here will also need to include mechanisms to ensure that jobs created provide minimal barriers to entry, are well-paid, offer opportunities for stable employment and benefits, and support unionization. These components will help ensure that the new climate economy will not just create jobs, but sustain worker and community well-being and create equitable opportunities for all.

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