Biden’s new climate bill gets it right by focusing on incentives rather than mandates
Like in surgery, it is better to use a scalpel than a sledgehammer on a patient, and Biden’s new climate bill uses smartly designed incentives (scalpels) rather than the cudgel of mandates
It’s looking very likely that President Biden will sign into law the Inflation Reduction Act (IRA), which includes the biggest financial package for energy efficiency, zero emissions vehicles, and green energy that has ever been designed by Congress.
The version passed recently by the Senate includes about $370 billion in incentives, over a ten-year period, for various kinds of clean energy technologies — which will be paid for by a number of tax increases and reductions in expected payments for prescription drugs by the federal government. Compare this to the $90 billion included in former Pres. Obama’s then-massive 2009 ARRA bill and we can get a sense of the scale of the investment contained in the new bill.
The key feature of this bill, however, driven in large part by Senator Manchin, who acted undeniably as the lynchpin of this bill’s passage — many would say its major hurdle, and that’s also correct— is its focus on incentives (carrots) rather than mandates (sticks). A New York Times article detailed the long history of climate bills in the Senate and how long it took for this bill to pass, noting its focus on incentives without mandates as a key reason it passed, with the bare minimum support of 50 Democratic senators, plus Vice President Harris as the tiebreaking vote, on a “reconciliation vote” that avoids the possibility of a filibuster.
I like this incentive-focused approach for a few reasons. First and foremost I like it because I think incentives are enough in themselves to achieve our climate and green energy goals. I’ve written extensively about the green energy transition and my view is that we are well on our way to a predominantly green energy economy in the US and around the world by 2035–2045, under existing market forces and based upon robust policy support over the last few decades.
(I wrote a whole book on this, 2015 1st edition here and 2022 2nd edition here; I also have taught climate change law and policy, and renewable energy law and policy, at the graduate and law school level off and on for the last 15 years).
Second, I like this approach because good public policy uses the least “force” necessary to achieve goals. There is a spectrum of possible policy choices in any field, from promoting entirely voluntary efforts to strict mandates. In the green energy field, and specifically with respect to climate policy, there is such a divide in this country over the science itself, suspicion of government mandates (quite justified in some areas), and a general culture war over policy and funding priorities, that achieving green energy and climate change goals should be done with great sensitivity and — again — using the least force necessary.
“Scalpel not sledgehammer” is my mantra in all areas of public policy.
By focusing on powerful scalpels (carrots/incentives) the Inflation Reduction Act is in my view a great example of how public policy should be done — with some pretty important caveats about specific areas of “green” energy that are included in the bill, which I discuss a little below.
Rhodium Group has produced (August 4) a good preliminary analysis of the effects of the bill if it’s passed into law, showing a steepening reduction of emissions in an already quite-positive downward trend over the last couple of decades:
I am optimistic, based on reliable past trends, that we will in fact achieve significantly deeper reductions by 2030, since this kind of modeling of emissions trends has frequently been too pessimistic (I cover these issues in detail in my book linked to above).
Rhodium Group also projects substantial savings in home energy bills from this bill, due to lowered fossil fuel prices:
The key areas incentivized by the Inflation Reduction Act include:
— a renewal of the $7,500 per vehicle tax credit for electric vehicles costing less than $55,000, including a $4,000 credit for used EVs (this makes Tesla and GM big winners because under the current legislation they are no longer eligible for the EV tax credit because they have exceeded 200,000 vehicle sales in the US; there is also a new requirement for American manufacturing of EVs which may hurt some EV makers while it also promotes American-made supply chains for EVs)
— a ten-year extension of the Investment Tax Credit for solar and Production Tax Credit for wind power (I’m not convinced these are needed anymore because these technologies are usually competitive on their own terms now, but in terms of meeting 2030 climate mitigation goals they will undeniably help)
— a massive boost for nuclear power (which is low in air pollution and greenhouse gas emissions but not otherwise clean) through a new Production Tax Credit for existing nuclear power plants (I don’t support this incentive because nuclear power is historically and today very expensive, unnecessary, and too dangerous in terms of its waste products and potential accidents — but that’s horse-trading politics for ya)
—the new Investment Tax Credit will apply to energy storage projects whether they are attached to a renewable energy generation project or are standalone storage projects (this is a big boost for the much-needed energy storage revolution to “firm up” variable renewables like solar and wind)
— Ditto for microgrids, another much-needed new technology to increase community resilience against grid failures
— $3 billion to pay for electric vehicles for the US Postal Service
Kudos to Biden and his negotiators for passing this important bill — and showing how good policy can be achieved.