No longer a problem for the distant future, the costs of climate change—wildfire, storm and flood damages, disruptions to agriculture, changes to insurance markets, and more—are already adding up and taking a toll on the lives and livelihoods of ordinary Americans. These costs disproportionately fall on communities of color and America’s economically vulnerable, who are already contending with higher exposure to local pollutants. At the same time, as the country works to restart its economy following the COVID-19 pandemic, energy must remain inexpensive and reliable, capable of fueling a robust recovery.
The U.S. Energy & Climate Roadmap aims to inform climate and energy policy in the new administration and Congress through a compilation of evidence-based proposals from scholars at EPIC. It is grounded in empirical research that has been galvanized by rigorous academic debate and channeled into practical policy applications.
“Many excellent ideas are developed through the inquiry and criticism of academia, but end up in journals on dusty library shelves. With this book, we’re taking those ideas, making them practical for the real world, and delivering them to policymakers.”
Michael Greenstone, Milton Friedman Distinguished Service Professor in Economics; Director, EPIC; Director, Becker Friedman Institute
Tax credits to boost clean energy deployment are an important part of the climate provisions within the Build Back Better Act. EPIC and Rhodium Group measure the costs and benefits of these tax incentives and find the benefits are about four times greater than the costs and would lead to a 64-73 percent reduction in power sector emissions from 2005 levels by 2031. When stacked up against other politically-feasible climate policies, the findings show that the tax credits are one of the least expensive ways to reduce carbon emissions, costing around $33 to $50 per ton.
Costs and Climate Benefits of Clean Energy Tax Incentives
The effects of climate change are already being seen and felt today. This chapter provides readers with a base of understanding about the effects of climate change in the United States. It demonstrates that the consequences will be different across the country, with some of the worst effects falling on already-disadvantaged regions.
Income Distribution of Impacts across U.S. Counties
The social cost of carbon (SCC), the total cost to society from the release of a ton of CO2 emissions, is vital in evaluating the benefits and costs of climate policies. Carleton and Greenstone recommend that the Biden administration immediately update the SCC by using a discount rate of no higher than 2 percent and including global damages, which would produce an SCC of $125 per ton. As a second step, they recommend that the Biden administration form an interagency working group to return the SCC to the frontier of understanding about the science and economics of climate change.
A Two-Step Process for Updating The U.S. Government’s Social Cost of Carbon
It is vital that climate policy make ambitious, attainable mitigation goals at a manageable cost. Yet, many existing policies do not meet that standard. The most effective climate policy will be one that establishes a national carbon price that is guided by the social cost of carbon. Critically, such a policy would incentivize other countries to reduce their emissions. The revenue collected can be used to refund low-income households and invest in clean energy R&D.
Current U.S. Policy is Piecemeal and Often Expensive
When only a subset of countries restrict emissions, energy-intensive industries—and their emissions—may move offshore to countries with few or no restrictions on emissions, a phenomenon known as “leakage.” Border tax adjustments are typically used to confront this challenge, but they are difficult to implement, are legally questionable and do not make the emissions restrictions much more effective. A better approach is to tax domestic extraction along with border adjustments on imports and exports of energy. An optimal policy would go a step further, expanding the effective tax base through a system of export supports.
One of the cheapest ways for the federal government to encourage the growth of renewable power is to remove the regulatory obstacles that prevent population centers from utilizing the most effective renewable resources across the country. To facilitate building a nationwide, high-voltage, direct-current grid, the federal government could simultaneously assert FERC’s primary role in transmission permitting and encourage the upgrading and re-use of existing rights of way.
Renewable Resources and Load Centers
The prices of many fossil fuel-powered electricity sources do not reflect their full social costs. A national Clean Electricity Standard would level the playing field among energy sources, facilitate decarbonization of the power sector, and encourage innovation in clean energy technologies. Policymakers could maximize the benefits of this approach by making the standard flexible and technology neutral, linking it to carbon reduction policies in other sectors, and pairing it with complementary policies that facilitate grid integration and directly support technological innovation.
Levelized Cost of Electricity by Source
Renewable energy production is set to take off in the coming decades, and with it demand for backup power sources. Modern nuclear plant designs are capable of ramping production up and down, making them an important, carbon-free complement to wind and solar energy. But policymakers should first improve design, manufacturing and construction processes to lower the cost of building new facilities, confront market failures to improve overall cost competitiveness, and take steps to improve public trust in the technology’s safety.
Energy efficiency policies have proven to be expensive ways of reducing carbon emissions and often do not deliver expected energy savings. Finding ways to improve these programs should be a key policy goal. Moving forward, funding should be allocated to the programs and the specific retrofits that are most cost effective based on independent and rigorous real-world evaluations. Existing empirical analyses should be used where possible, and new evaluations should be conducted as technologies are deployed.
Energy Efficiency Delivers Lower than Expected Savings
Transportation is America’s largest source of emissions, so improving vehicle efficiency is an important policy goal. Policymakers can make fuel economy standards more efficient and effective by eliminating regulatory distinctions between vehicles of different sizes and types; by establishing a formal, transparent market to trade emissions credits; and by promulgating new rules to bring emissions testing under the direct supervision of regulators and imposing tough penalties for violations to deter cheating and increase trust.
Transportation is the Largest Source of GHG in the U.S.
Under current policy, coal is projected to remain an important U.S. fuel source for decades to come. To accelerate the country’s transition away from coal, regulators should consider its full social costs when deciding whether to approve new mines on federal lands and how much pollution should be allowed from power plants. Further, regulators should address legacy environmental issues at these sites, while giving coal workers the opportunity to help clean up closed mines and plants in their communities.
Coal Fired Electric Power
Several changes to the federal mineral leasing process would better protect the environment and public health while delivering more attractive financial returns to taxpayers. These changes would make the leasing process more similar to those already used in state and private markets, and include increasing the royalty rate, shortening primary terms, increasing the minimum bid and eliminating the non-competitive leasing program, and strengthening bonding requirements.