President Joe Biden’s new climate strategy, announced after his original plan collapsed under opposition from Congress, will represent a historic investment in clean energy technology and infrastructure if passed. But that will probably not yet be enough to meet the administration’s emission reduction targets for 2030.
As director of the Climate Policy Lab at the Fletcher School at Tufts University, I analyze the ways in which governments can deal with climate change.
As the new plan falls into place and the administration considers future steps, here are five types of policies that can help the United States on track to meet its climate goals. Together, they would reassure the world that the United States can honor its climate commitments; help to ward off the effects of a planned border carbon tax in Europe; and, if well designed, positioning American workers and businesses for the low-carbon economy of the 21st century.
The ability of the United States to compete in low-carbon and resilient technologies such as energy storage has eroded over the past two decades.
Part of the problem has been the political deadlock in Washington on clean energy and climate policies. Over the past 20 years, tax credits, loan guarantees and regulations have started and stopped, depending on the political whims of whoever is in power in Congress and the White House. American companies have gone bankrupt while waiting for the markets to materialize.
Meanwhile, European companies, with the support of their investment and development banks, and Chinese companies have taken the lead, using their home markets to demonstrate new technologies and build industries. Wind turbines are a good example. European companies, led by Denmark’s Vestas, controlled 43% of the global wind turbine market in 2018, and China controlled 30%. In contrast, the United States accounted for only 10%.
I believe the United States as a country has to make choices as to where they have a comparative advantage, and then the federal government can chart a clear course to develop these industries and compete in these global markets. Will it be electric vehicles? Electricity storage? Adaptive technology such as dike construction, flood control or forest fire management? Independent advice could be provided to the administration and Congress, perhaps by the National Academies of Science, and then Congress could authorize an investment plan to support these industries under certain conditions.
As tempting as it is to support all technologies, public funds are scarce. Companies that receive grants should be held accountable for performance requirements, and taxpayers should get a return when these companies are successful.
As part of industrial policy, officials must also face the fact that some workers, states, towns and villages whose industries are closely linked to fossil fuels are vulnerable in the transition to cleaner energy.
In a panel of experts convened by the National Academies of Science and a recent study, colleagues and I recommended that the government create a National Transitional Society to provide support and opportunities to displaced workers and affected communities. These communities will have to diversify their economies and their tax bases. Grants, loans and other land-use planning investments can help them direct their economies to industries that contribute less to climate change. Setting up a U.S. infrastructure bank or green bank to fund low-emission, resilient projects could help fund these investments.
Equally important is investing in the workforce necessary for a low-carbon economy. The government can subsidize the development of programs in colleges and universities to serve this economy and provide scholarships to students.
Other policies can help generate the income needed to support the transition to a clean economy.
Clearly, removing subsidies from the fossil fuel industries is a crucial step forward. One analysis conservatively estimated that the United States provides about US $ 20 billion per year in direct subsidies to the fossil fuel industries. The estimates of indirect subsidies are much higher.
Tax reform can also help, such as replacing some personal and corporate income taxes with a carbon tax. This policy tool would tax the carbon contained in fuels, creating an incentive for businesses and consumers to reduce the use of fuels with the greatest impact on the climate. To avoid overburdening low-income households, the government could reduce income taxes on low-income households or provide a dividend check.
Tax credits, loan guarantees, government procurement rules, and investments in innovation are all useful tools and can shape markets for American businesses. But these fiscal policy tools should not be permanent, and they should be phased out as technology costs fall.
Invest in markets as well as in innovation
The government has the capacity to both “push” and “pull” climate technologies to market. Government investments in research and human capital are ‘push’ type policies, because research support ensures that smart people will continue to move in the field.
The government can also “attract” technologies by creating dynamic markets for them, which will provide additional incentives for innovation and stimulate large-scale deployment. Carbon taxes and emissions trading systems can create predictable markets for industry because they provide long-term market signals that let companies know what to expect for years to come. come, and they at least partially explain the damage a product causes to the environment.
While the United States invests in clean energy research, development and demonstration, it has been less successful than China or Europe – both of which have emissions trading systems – in develop predictable and sustainable markets.
A proven American policy tool is the use of performance standards. These standards limit the amount of greenhouse gas emissions per unit, such as fuel and greenhouse gas economy standards for motor vehicles, energy efficiency standards for appliances and equipment. industrial and state-level building efficiency standards. Fuel economy standards on automobiles since 1975 have saved an estimated 2,000 billion gallons of gas and reduced greenhouse gas emissions by about 14 gigatons, or about three times the annual emissions of the energy-related countries in 2020.
Performance standards give companies the opportunity to find the best way to comply, which can also fuel innovation. The Biden administration could develop new performance standards in every major emitting sector – vehicles, power plants and buildings. Federally enforced building codes, which are set at state and local levels, would be a difficult political lift.
Laws that established the government’s power to set standards, such as the Clean Air Act and the Energy Policy Act, however, have certain ambiguities that can make standards vulnerable to legal challenges. Legal challenges have led to a zigzag in regulation in some sectors, most obviously the electricity sector.
Nature-Based Solutions and State Law
A final area where policy is needed is in nature-based solutions. These may be fiscal incentives for restoring forests, which store carbon, or protecting existing lands from development, or they may be regulations.
State-level laws and regulations can also be extremely powerful in changing the trajectory of US emissions.
Biden’s Plan B
The centerpiece of Biden’s original climate plan was a program designed to reward and pressure utilities to move electricity generation away from fossil fuels more quickly. With the Senate split evenly between Democrats and Republicans, opposition from West Virginia Democrat Joe Manchin sank the plan.
The Biden administration’s new Plan B has a number of heroic assumptions and relies heavily on fiscal and regulatory tools, as well as numerous state-level actions.
Plan B lacks the focus on innovation and industrial policy, both of which could have a greater impact on US emissions. The elephant in the room that cannot be ignored is that the United States needs a climate bill that promulgates its emission reduction targets by 2030 and 2050, government agencies give competent policy-making power and meet the needs of industry and the workforce.