Build Back Better and American Climate Leadership
Last week the U.S. House of Representatives passed President Biden’s Build Back Better bill that includes several social welfare and family support provisions. It also includes a critically important program to accelerate the reduction of America’s greenhouse gases. If we are to ever mitigate greenhouse gasses and reduce global warming, this bill is essential to demonstrate that America is serious and will provide an example for other nations to emulate. The bill includes a fee on large companies that leak methane. I think that fee has little chance of surviving the Senate version of this sausage-making process. I don’t know which climate provisions of the bill will survive, but the remaining ones have broad political appeal and may well be enacted before the year ends.
According to Coral Davenport of the New York Times, the bill passed by the House includes:
“… $320 billion in tax incentives for producers and purchasers of wind, solar and nuclear power, inducements intended to speed up a transition away from oil, gas and coal. Buyers of electric vehicles would also benefit, receiving up to $12,500 in tax credits — depending on the portion of vehicle parts made in America, and whether it was built by union workers. There would be $1 billion to build electric vehicle charging stations, $2.9 billion to make the electrical grid more conducive to transmitting wind and solar power, and $12.5 billion in rebates for homeowners who install more energy-efficient appliances. And the bill would provide $55 billion to promote climate-friendly farming and forestry and research programs, $29 billion for a “green bank” program to help communities finance renewable energy projects and $10 billion to help rural electric cooperatives cover the cost of switching from coal plants to renewable energy.”
The tax incentives are a replacement for the “clean energy plan,” which would have rewarded utilities that decarbonized and punished those who would not. Since that provision would have resulted in higher utility bills in noncomplying states, I had always assumed it was both a political non-starter and bad politics for the president, and it has been replaced with a program of rewards without punishment. This approach should hasten the move to renewable energy, and as renewables scale up, reduce their price, and ultimately drive down the cost of energy.
A second provision provides a large tax incentive to purchase electric vehicles. Coupled with the huge investment in EVs by Ford and GM, I expect this will rapidly increase the adoption of electric vehicles. I would be surprised if the provision survives requiring the vehicles to be built in America by union workers. Senators from southern states with non-union automakers will see that this provision is dropped.
Writing about this provision, Road and Track reporter Mack Hogan observed that:
“Democrats in Congress recently revealed a sweeping reform of the federal zero-emission vehicle tax credit. The plan eliminates the current limit that phases out credits for automakers that have sold over 200,000 qualifying EVs, caps the sticker price of eligible cars, allows buyers to deduct the credit at the time of purchase, and would be limited to American-made cars starting in 2027. But the most controversial restriction has to do with union labor. While the new bill is largely an extension and refinement of the current $7500 tax credit for battery-electric (and other zero-emissions) vehicles, it adds a $500 incentive for vehicles that use U.S.-built batteries, plus an additional $4500 credit exclusively for EVs built with unionized labor… That means that, for example, a U.S.-built Ford EV would receive up to $12,500 in federal rebates, while a U.S.-built BMW EV would cap out at $8000…Such an explicitly pro-EV and pro-union bill is unlikely to get any cross-aisle support, meaning all 50 Democratic Senators will need to support it for the bill to pass. In the face of mounting criticism, it’s far from certain that the bill can make it through as currently written.”
Another provision is $1 billion to subsidize vehicle charging stations. While I see that as a useful way to jump-start the charging industry, ultimately, I project that charging stations will rapidly be taken over by the private sector. I suspect that every convenience store with a gas station out front will eventually convert some pumps to charging station-parking spots. Customers will be encouraged to spend more time in the store with their Slurpee, or perhaps seating will be installed for a longer stay. Since people will need to pay for charging, there will be a revenue stream and profits to be made from charging, so after an initial subsidy to get the business started, these subsidies can go away.
There is also a wide range of subsidies to encourage household energy efficiency and to install solar panels in private homes. Along with the infrastructure bill recently signed into law by the president, it provides billions of dollars to the nation’s electric utilities to upgrade the grid to facilitate a more efficient and decarbonized energy system. The Sierra Club’s Fact Sheet on the bill notes that: “The Build Back Better Act includes more than 130 programs that would invest nearly $600 billion in climate action, clean energy jobs, and environmental justice.” The fact sheet notes that the new law would:
- “Convert more than 60,000 diesel school buses to clean electric buses…
- Convert 70% of U.S. Postal Service mail trucks to clean electric vehicles…
- Help replace over 5 million lead service lines — about half of the national total — to deliver clean water…
- Help the average family save about $500 each year in utility bills.
- More than double the speed of wind and solar power expansion, bringing renewable energy to millions of additional homes each year.
- Make it $7,000 cheaper on average to install solar panels on your rooftop.
- Boost access to renewable energy in low-income and Indigenous communities by covering 40-50% of the cost of solar and wind projects
- Offer churches, hospitals, schools, local governments, and other nonprofits the opportunity to install wind and solar power for 30% less than the normal cost.
- Make the electric grid more reliable…”
The bill includes the creation of a National Climate Corps to put 300,000 young people to work on projects that will enable us to mitigate and adapt to climate change. Last but not least, the bill provides $29 billion dollars to capitalize a national green bank. Since late May, 13 of the students in Columbia University’s graduate program in Environmental Science and Policy have been conducting a management simulation of the start-up of such a national green bank. They have demonstrated the feasibility and potential impact of a national green bank. The goal of the bank is to attract the capital needed to accelerate the transition to a decarbonized energy system. As Saul Elbein reported recently in The Hill:
“Last week, Democrats included the Clean Energy and Sustainability Accelerator proposal in the Build Back Better plan…Over the next 10 years, the bill’s authors say, that investment will mobilize another $232 billion in community investment… The plan for a green bank — which has passed the House three times since 2009 without passing the Senate — “isn’t unique,” said Reed Hundt, CEO of the Coalition for Green Capital (GCG)…But the current U.S. proposal is “the biggest and most well-conceived version,” Hundt said. The goal of green banks is to bridge a difficult gap in the energy transition, Hundt said: the fact that much of the necessary adaptation to a low-carbon economy has to happen at the level of $100,000 to $10 million projects that are too big for small entities to easily afford, and too small for commercial banks to easily make a loan.”
We do not know which elements of this program, if any, will emerge from the U.S. Senate, but its enactment would be a significant milestone in what will be a generation-long effort to mitigate climate change. It will set in motion steps that will largely be driven by the private sector once these initial investments have been made. It will make the American economy more globally competitive because it will lower the cost of energy and reduce its local environmental impact. However, it will only impact climate change if other nations follow our lead. No matter how much we decarbonize, we can’t mitigate global warming on our own.
Still, if America does not take these steps, you can be sure few others will. If we, once again, kick the “climate can” down the road, we should be prepared for the road to be flooded, washed away, covered in debris, and possibly surrounded by burning forests. The good news about these programs is that they are positive inducements for change. No one is requiring that you buy an electric vehicle, but this program will make them less expensive than one powered by fossil fuels. The president and the House of Representatives have taken a giant step in the right direction.
The next move is in the hands of a deeply divided, dysfunctional U.S. Senate. Several moderate democratic Senators literally have the fate of the world’s climate in their hands. While that may not persuade them, the failure to enact this bill would be a crushing political blow to their party, inevitably impacting their own political survival. I’m betting on Build Back Better, and hopefully, that’s not just foolish optimism on my part.