September will be a critical month for climate action. This month represents the best chance during the Biden administration, and perhaps the best chance this decade, to pass major climate legislation through Congress. Extreme weather events this year — including Hurricane Ida, fires in the West, the Texas ice storm, and the Pacific Northwest heatwave — demonstrate the need for urgent action on climate. Passing ambitious federal legislation now is essential to address the devastating effects of climate change at home and to re-establish U.S. leadership on the global stage.
Power plants are no longer America’s largest source of heat-trapping pollution (cars, trucks, buses and airplanes are), but clean electricity is nonetheless the cornerstone of our climate action agenda. Achieving 80 percent clean electricity by 2030 would be the most effective way to reduce emissions this decade and is also essential for powering pollution-free vehicles and buildings. The investments in power generation and grid infrastructure made over the next decade will determine our path for years to come.
Of the climate-related items included in the budget reconciliation package, the Clean Electricity Payment Program (CEPP) and clean energy tax credits provide the biggest emissions reductions. These are key provisions that will be needed to achieve 80 percent clean electricity in the next decade, as called for in the budget resolution that passed in both the House and Senate. These two policies can work in tandem: clean energy tax credits would continue to drive down the cost of clean energy technologies, while the CEPP would create demand for clean energy from utilities and other electricity providers across the country.
While we are still awaiting the legislative text for the CEPP, the broad contours of the policy are known. The CEPP is an investment-based program that incentivizes electricity providers to increase the amount of clean electricity within their territory, reaching a national average of 80 percent clean electricity by 2030. This general approach is not new — it’s a proven policy. The CEPP builds upon existing, popular clean electricity standards adopted by 30 states that have been around for two decades and have grown in ambition over time. These policies have been important drivers of renewable energy installations and have resulted in substantial cost declines in clean energy. While the CEPP proposed for inclusion in the budget reconciliation package is not a regulatory standard, it would drive the same kind of action and investments.
A well-designed CEPP would enable faster clean energy deployment over the next decade. It would provide greater investment certainty for electricity providers by establishing a target for clean energy generation, allowing for different starting points, and driving clean energy installations across all parts of the country. It would also be technology-neutral, enabling the most cost-effective technologies to be used to decarbonize the power sector. Independent modeling has found that an 80 percent clean grid could achieve substantial public health benefits — one study found it would help avoid more than 300,000 premature deaths by 2050 and save approximately $1.13 trillion in health costs, in addition to providing $637 billion in climate benefits.
To ensure that the CEPP is successful, Congress should include provisions to make sure that it applies to electricity providers across the country and covers any above-market costs of clean energy not already addressed by the tax incentives.
The CEPP should include penalties for electricity providers that fall far short of their clean electricity targets to ensure that electricity providers in all parts of the country invest in new clean energy sources while maintaining their existing clean energy portfolios. A clean energy target without a penalty could result in a shell game: Some electricity providers could choose not to try to meet their clean energy target and instead reshuffle existing clean energy generation to other companies.
In addition, the CEPP should be designed to provide incentive payments to electricity providers for the above-market costs of clean energy, so that the policy can cost-effectively work in tandem with clean energy tax credits. As the costs of clean electricity technologies continue to fall, it is difficult to anticipate how much of an incentive will be needed to meet clean electricity targets (in conjunction with clean energy tax credits). The amount will also vary on a regional basis and depend on the existing resource base of each provider. Paying only for the above-market costs will ensure that the funding devoted to the CEPP achieves the most emissions reductions possible.
While policy details may only come with a future agency rulemaking, including key provisions of the program in binding legislation will be critical for the CEPP to be durable and effective.
Congress must pass strong, ambitious climate action this fall. The string of extreme weather events we are experiencing this year in the U.S. and around the world are only the beginning if we fail to tackle the climate crisis. Climate-smart infrastructure investments and tax credits will be even more effective if combined with a methane emissions fee and a carbon tax, which is now under consideration by the Senate Finance Committee. The climate provisions of the budget reconciliation package, combined with the Infrastructure Investment and Jobs Act which passed the Senate in August, must put the United States firmly on course to cut greenhouse gas emissions at least 50 percent from 2005 levels by 2030. Doing so is essential to build the clean and resilient energy system we need to avoid the most devastating effects of climate change and to power sustainable, equitable and prosperous communities in the 21st century.
Dan Lashof is the director of World Resources Institute, United States. Follow him on Twitter: @DLashof
Lori Bird is director of World Resources Institute, U.S. Energy Program and Polsky chair for renewable energy.