On the economics of building back greener.
With a high-stakes election on the horizon, the Democrats are working hard to shore up a winning policy platform. The Biden-Sanders Unity Task Force recently released this progressive page-turner full of recommendations for an incoming Biden administration. The first item on the policy agenda? Combat the climate crisis.
Biden has since adopted a glossier version of the task force climate policy recommendations as his own. Pre-election promises do not a climate bill make. But the messaging in this Biden proposal signals a big increase in ambition and a big shift in emphasis. This is climate action framed in terms of job creation and public investment.
There’s a lot to unpack in this $2 trillion plan (EVs! public transit! wireless broadband!). Focusing on my favorite sector (electricity!), three things caught my attention.
One of the more ambitious parts of the plan is the promise to drive power sector GHG emissions to zero by 2035:
“Democrats commit to eliminating carbon pollution from power plants by 2035 through technology-neutral standards for clean energy and energy efficiency.”
This is more ambitious than Obama’s Clean Power Plan which called for a 32% reduction by 2030. It’s more ambitious than the plan Biden brought into the primaries which aimed for carbon-free electricity by mid-century. 100% decarbonization by 2035 is big. Is it doable?
If you attended our 2020 POWER Conference, you might remember an important presentation by Amol Phadke. Amol and his co-authors have been working to assess what falling technology costs imply for power sector decarbonization (in California and nationwide).
The figures above show how wind and solar costs have dropped 60-80% since 2010. Battery storage prices have fallen more than 80%. Based on some plausible technology cost projections (illustrated in the graphs above), these authors estimate that 90% carbon-free electricity generation by 2035 is not only feasible but cost-effective at a carbon price of $50/ton. The figure below (taken from the nationwide study) charts the mix of resources that could get us there.
Why stop at 90%, you ask? One reason is that costs escalate as you try and decarbonize even further. But there is something seductive about going all the way, so the Berkeley team has recently expanded their nationwide analysis to assess the costs of pushing past 90% to 100%. They gave me permission to share their preliminary results with you, loyal EI blog reader. (Addendum: These authors have since posted their own blog on this important work here.)
To completely decarbonize the electricity grid, you either need to invest in CCS or shut off all fossil fuels and rely on some relatively expensive alternatives (e.g. more storage, hydrogen fuel cells). They find that driving power sector GHG emissions to zero more than doubles the marginal cost per ton of carbon pollution avoided, pushing into the $100-$125 range. And higher costs mean higher electricity prices which could make it harder to cut GHGs in sectors we are hoping to electrify like transportation and buildings (see great blogs by Jim and Severin).
The upshot is that decarbonizing the electricity sector by 2035 is doable. Given falling technology costs and rising temperatures, we should be going after deep GHG reductions. But given the relatively high incremental costs and complexities, we should be circumspect about driving power sector emissions all the way to zero.
Jobs, jobs, jobs
The second thing that is so striking about the Biden plan is the strong emphasis on job creation. The word “jobs” appears 53 times in the Biden plan. The word “climate” is mentioned 28 times.
“Transforming the U.S. electricity sector – and electrifying an increasing share of the economy – represents the biggest job creation and economic opportunity engine of the 21st century.”
Economists are generally skeptical about job creation claims in normal economic times. But these are not normal economic times. The unemployment rate is at a historic high. And some of the jobs lost to the pandemic may not be coming back.
Post-pandemic, we’ll need to invest in job creation. The idea of green job creation sounds good. But not all green jobs are good jobs. The Biden plan speaks to this with lots of references to supporting apprenticeship programs, high labor standards, high wages, and Project Labor Agreements.
If labor concerns are steering our climate policy, what does this mean for the targeting of public investments and policy incentives?
To get some insight into this question, researchers at the UC Berkeley Labor Center have been studying how workers are faring under California’s campaign to align climate action with good workforce policies. One insight is that good green jobs (with robust benefits, certified apprenticeships, and decent wages) are more often associated with larger-scale infrastructure projects such as utility-scale wind and solar. Smaller-scale jobs, such as rooftop solar projects and residential efficiency retrofits, offer lower wages and benefits.
When we crawl out from under the pandemic, we’ll need to focus on creating good jobs and saving the planet. To thread this needle, focusing on larger-scale projects could be our best bet.
The third thing that caught my attention reading through the Biden plan is that the phrase “carbon tax” appears zero times. Democrats have learned the hard way that framing a climate policy agenda in terms of how we will pay for it is a bad political strategy. No surprise, then, that the Biden plan is virtually silent on the question of where the $2 trillion will come from.
Questions about how to pay for climate mitigation are sometimes dismissed as inapt. On a sinking ship, do you inquire about the cost of a lifeboat? But there are many ways to build this boat. And some ways will cost a lot more than others.
We beat the carbon pricing drum all the time on this blog. But I’d be remiss not to beat it again. Mandating expensive abatement in some parts of the economy while allowing GHGs to be emitted free of charge in other parts will increase the costs – and compromise the durability – of ambitious climate goals. Incorporating an economy-wide carbon price would provide an incentive to reign in GHGs wherever they are emitted, not just where abatement investments have been mandated. Carbon pricing would also generate badly needed revenues to fund public investments in job creation and climate change mitigation.
The ambition behind the Biden plan needs to prevail. I understand that a carbon price is the wrong way to sell an ambitious climate plan. But carbon pricing is the right way to help pay for it. Let’s hope that we find ourselves deliberating over these important implementation details post-November.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
Suggested citation: Fowlie, Meredith. “Biden’s New Climate Plan” Energy Institute Blog, UC Berkeley, August 3, 2020, https://energyathaas.wordpress.com/2020/07/27/how-utility-customers-will-pay-for-the-pandemic/