The hottest year on record probably burned through your household budget. 'Families are falling behind.'

By Aarthi Swaminathan

'Summer cooling costs are not coming down,' expert says, as the world only gets warmer

It's official - 2023 was the hottest year on record. For millions of households, that likely meant higher utility bills and home-insurance costs.

Last year was the warmest year in global temperature data records going back to 1850, the Copernicus Climate Change Service said. The average global temperature in 2023 was 14.98 degrees Celsius - or 58 degrees Fahrenheit - which is 0.17 degrees higher than the previous peak in 2016.

In particular, July and August 2023 were the warmest two months on record, the organization said.

For homeowners, those higher temperatures can mean higher bills, especially utilities and home-insurance costs.

"Summer cooling costs are not coming down just because temperatures are continuing to get hotter," Mark Wolfe, executive director of the National Energy Assistance Directors Association, told MarketWatch.

Many organizations, including the U.S. Energy Information Administration, had forecasted that hotter weather would result in higher electricity consumption as more Americans tap on air conditioning to keep them cool. More energy used results in higher bills.

At the same time, homeowners have also seen home-insurance costs rise, due to the increasing incidence of climate change-related disasters, such as wildfires and floods.

For lower-income families, the double whammy of rising home-insurance costs and utility bills likely hit their household budgets a lot harder than higher-income households, Wolfe said.

Rising costs have also pushed some households into debt, Wolfe said. Before the pandemic, families were behind on $17 billion in utility bills. The most recent estimate for 2023 was $20.3 billion.

"Families are falling behind on their utility bills," Wolfe said. "My concern is that people are falling behind on their utility bills and getting into debt, and federal funding to help them is going down."

The federal government provided $6 billion in assistance to households to pay their energy costs in 2023 under the Low Income Home Energy Assistance Program, but that's down from the $8.3 billion provided in 2022, Wolfe noted.

Americans are consuming electricity to stay cool

Larger homes may require more electricity to stay cool, as could homes located farther south and in areas where it's hotter. Some households may run their air conditioners more often than others, to get some relief from the heat.

The EIA forecasted last year that the summer heat would bump up natural-gas consumption in the U.S. to a record high, due particularly to electricity generation in July and August. Natural gas provided about 46% of U.S. electricity for those two months, the EIA said at the time.

As a result, the cost of home energy in the summer of 2023 was expected to rise by nearly 12%, the National Energy Assistance Directors Association said last July. Homes in New England would pay the most, and Pacific Coast homeowners the least, according to Wolfe's report.

The typical home in the U.S. would see their electricity bill increase from an average of $1,071 in 2012-'13 to about $1,374 in 2023-'24, he estimated.

The EIA said that the average monthly electricity bill was $137 a month in 2022, which was up 13% from the previous year.

The typical U.S. household over the summer of 2023 was estimated to have used about 1,059 kilowatthours of electricity each month between June and August 2023, Tyler Hodge, senior economist at the EIA, told MarketWatch.

While that was 4.3% lower than what they used in 2022, "their total bills were higher because the average retail price of electricity has risen 13.2 cent/kWh in the summer of 2020 to an estimated 15.9 cent/kWh this past summer," Hodge added.

And over the past five years, consumers have seen electricity prices rise by nearly 30%, according to data from the federal government, as seen below.

Americans paying more in home-insurance premiums

Americans are also paying more in insurance costs, due to their homes being at risk of wildfires or floods.

Homeowners in areas prone to flooding have faced a steep increase in premiums recently, and new homeowners in wildfire-prone areas are finding it hard to get wildfire insurance.

Home-insurance prices are based on the losses insurers incur in a specific state over a period of time, Michael Barry, chief communications officer at the Insurance Information Institute, told MarketWatch.

"Severe convective storms are among the most common, and damaging, natural disasters, having caused more than $50 billion in U.S. insured losses in 2023," Barry explained.

"These storms are the result of warm, moist air and manifest in various ways depending on atmospheric conditions - from drenching thunderstorms with lightning, to tornadoes, hail or destructive straight-line winds," he added.

And insurers are worried about the "growing frequency, and severity, of natural disasters" which result in significant property damage, Barry said.

Premiums are therefore rising, reflecting the increased danger that homes face amid climate change. Between May 2023 and 2024, home-insurance policy premiums rose by an average of 21% at renewal, according to a report by Policygenius. Compared to two years ago, premiums are roughly 35% higher.

Cost of generating electricity rose over the years

The cost of generating electricity has also increased over the past few years, which has increased consumers' monthly expenses.

Since burning natural gas is the primary source of generating electricity, the rise in the cost of natural gas has led to price hikes for consumers. Natural gas prices hit a peak in mid-2022 before settling lower through 2023.

Combating climate change requires global effort, experts stress

The rise in global temperatures and the fact that 2023 was the hottest year on record, on top of increasing incidents involving wildfires and floods, underscore the importance of mitigating climate change, experts said.

"The extremes we have observed over the last few months provide a dramatic testimony of how far we now are from the climate in which our [civilization] developed," Carlo Buontempo, director of the Copernicus Climate Change Service, said in a statement.

"The annual data presented here provides yet more evidence of the increasing impacts of climate change," Mauro Facchini, head of Earth observation at the European Commission's directorate general for defense industry and space, said in a statement.

And "this has profound consequences for the Paris Agreement and all human endeavours," Buontempo added, referring to the legally binding international treaty adopted by 196 parties at the United Nations Climate Change Conference in Paris in 2015.

The goal of the Paris agreement was to limit global warming to 1.5 degrees Celsius by the end of the century.

"If we want to successfully manage our climate-risk portfolio, we need to urgently decarbonize our economy whilst using climate data and knowledge to prepare for the future," Buontempo said.

-Aarthi Swaminathan

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

01-10-24 1042ET

Copyright (c) 2024 Dow Jones & Company, Inc.