Each week, we’re compiling the most relevant news stories from diverse sources online, connecting the latest environmental and energy economics research to global current events, real-time public discourse, and policy decisions. Here are some questions we’re asking and addressing with our research chops this week:
How could climate policies in the infrastructure bill impact emissions, consumers, and the electricity sector?
Democrats’ plans for passing two infrastructure bills confronted a major hurdle, potentially threatening a raft of clean energy and climate provisions. House Speaker Nancy Pelosi (D-CA) indefinitely delayed a vote on the bipartisan infrastructure bill on Thursday night last week when it became clear that policymakers had yet to agree on which policies to include in a more far-reaching reconciliation package and on whether to support the bipartisan bill in the interim. The suite of environmental provisions that will appear in future legislation will depend in large part on the agreements that senators can forge in the coming weeks. For example, Senator Kyrsten Sinema (D-AZ) prefers a carbon price to higher taxes on wealthy individuals and corporations. Conversely, Senator Joe Manchin (D-WV) hopes to redesign the proposed Clean Electricity Performance Program so that it credits natural gas; in addition, Manchin has fretted that extending renewable energy tax credits while ending subsidies for oil and gas production would create an uneven playing field.
In a new issue brief, RFF’s Nicholas Roy, Dallas Burtraw, and Kevin Rennert describe how various climate policy proposals under consideration for the reconciliation bill would impact the electricity sector. Building from an earlier analysis of the economy-wide effects of clean energy tax credits, the Clean Electricity Performance Program, and a carbon fee, the scholars consider how those three policies—implemented together or individually—would affect clean energy generation, emissions reductions, and the cost burden on consumers. The authors note that planned clean energy tax credits and the Clean Electricity Performance Program would decrease costs to electricity consumers and reduce emissions. Conversely, carbon fees tend to increase costs to consumers, but when combined with tax credits and the Clean Electricity Performance Program, the costs for consumers fall relative to a business-as-usual scenario over the next decade. The scholars conclude that no one policy alone can achieve the Biden administration’s goal of 80 percent clean electricity by 2030. Instead, “a comprehensive policy package combining incentives with a carbon fee achieves the Biden administration’s clean electricity goal while reducing costs to consumers,” they write.
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Could a border carbon adjustment be implemented without the need for new legislation?
Another point of uncertainty in infrastructure negotiations is whether policymakers can design a border carbon adjustment, which would impose fees on goods from countries that lack sufficiently stringent environmental policies. So far, a border carbon adjustment has been left out of the initial draft of the reconciliation bill put together by House committees, though much is in flux as policymakers redesign legislation around the concerns of some key senators. Still, major design questions persist. Some officials in the White House reportedly worry that a border carbon adjustment could increase prices for US consumers. The World Trade Organization also could push back on proposals that are noncompliant with existing trade rules. And policymakers are grappling with whether such a policy can be implemented absent a domestic carbon price. Passing a carbon price—in lieu of a tax increase for wealthy Americans and corporations—could assuage the concerns of Senator Kyrsten Sinema (D-AZ) and make it easier to design a complementary border adjustment, but efforts to price carbon have long faced steep odds on Capitol Hill.
In a new issue brief, RFF University Fellow Joseph E. Aldy lays out how policymakers could implement a border carbon adjustment, even as the adoption of ambitious climate legislation continues to present challenges. Aldy suggests that the US Department of Commerce can rely on existing statutory authorities under countervailing duty law as an “interim measure.” In essence, countervailing duty law provides a remedy for US businesses that claim they are burdened by unfairly subsidized imports, and Aldy says the tool can be leveraged to level the playing field for US businesses and prevent emissions from increasing overseas as a result of emissions leakage. Specifically, the Department of Commerce could issue a regulation that addresses the competitiveness pressures faced by energy-intensive domestic industries, which arise when foreign industries incur lower costs due to less stringent climate policies. “A [countervailing duty] mechanism that is focused on climate policies may provide an interim and targeted approach to level the playing field as global negotiations continue,” Aldy concludes in an accompanying blog post.
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How is the state of Illinois navigating the transition to clean energy?
Last month, Illinois Governor J. B. Pritzker signed the Climate and Equitable Jobs Act (CEJA), a law that aims to transition Illinois to 100 percent clean energy by 2045. The law will provide subsidies of $580 million per year to renewable energy and $700 million over five years to nuclear energy, set closure time lines for coal and natural gas facilities that do not adopt carbon capture technology, and provide a $4,000 rebate for new electric vehicle purchases. The legislation garnered bipartisan support, in part because of its approach to nuclear energy, which is the largest source of electricity in Illinois; without the bill, many of the state’s nuclear power plants—which are located in rural areas and have faced significant revenue shortfalls—would have been at risk of closing. CEJA also includes provisions to help promote an economically and racially equitable energy transition, such as job retraining and scholarships for displaced fossil fuel workers, along with low-interest loans for clean energy projects in low-income communities.
On a new episode of the Resources Radio podcast, Assistant Professor Gilbert Michaud of Loyola University Chicago delves into various provisions included in CEJA, including job-training plans for displaced fossil fuel workers and ethics reforms for utility companies. Michaud describes how Illinois’s prodigious nuclear energy fleet—which allows it to be less dependent on coal and natural gas—and its passage of similar legislation in 2016 has allowed policymakers to set ambitious goals for clean energy. Despite Illinois’s unique energy mix and political coalitions, Michaud contends that CEJA can serve as a model for other states that seek to decarbonize. “One of the really exciting things about CEJA—and about what Illinois is doing, broadly speaking—is that it’s laying out a foundation for midwestern states and other states to look at what we’re doing as a policy leader,” Michaud says.
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Various climate policies that could feature in infrastructure legislation aim to clean up the electricity sector. Our #FactOfTheWeek considers the size of the potential impact.
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If implemented together, clean energy tax credits, a Clean Electricity Performance Program, and a carbon price that starts at $15 per metric ton could reduce emissions by 94 percent by 2030 relative to 2005 levels.