Clean energy: policies needed

Welcome to part 2 of the clean energy series. In the last post we met the 2035 Report and Rewiring America. And we found out some really good news: the 2035 Report finds that it’s possible to quickly build a US electrical system that produces 90% less carbon, is cheap to run, and is dependable everywhere. We can do all that using technology (like wind turbines and solar panels) that exists right now. Rewiring America builds on the idea of a clean electricity system and finds that by quickly electrifying buildings and cars we can reduce total US emissions by 85% and stay on track for a livable climate.

So how do we do all that? Policy, basically. Both the plans we’ve been talking about, along with current Democratic party proposals (the 2020 DNC platform and the Green New Deal), include many common themes on the policies required for grid decarbonization. What exactly would a successful set of policies look like?

Set a federal clean electricity standard

The 2035 report recommends a 90% clean electricity standard by 2035, with checkpoints along the way. Hitting 90% will require utilities to replace every fossil plant nearing retirement with renewables1. (This is sort of an electricity grid-specific variant of the “100% replacement” idea from Rewiring America - more about that in a minute.) To put it bluntly, a “standard” means that power companies will be required to hit these targets, or else they have to pay penalties. Thirty states already have some form of renewable portfolio standard (RPS) and we know what the best practices are. To make significant progress though, the standard needs to be at the federal level — the grid is a multi-state piece of infrastructure and many Republican-controlled states currently have no plan or desire2 to get to zero carbon.

  • Estimated costs: it’s complicated but probably a wash. Utilities will need to spend money to build new renewables, but since utilities are regulated monopolies they get to pass those infrastructure costs on to ratepayers3 in the form of slightly higher costs for the electricity they sell4. Both 2035 and RA make a case that energy customers will wind up saving money in the end because the operating costs of renewables are so low.
  • Who: Congress.
  • Less good options: the EPA could also put carbon and air quality regulations in place that might have this effect5. State legislatures could also implement stricter RPS. The 2035 report also modeled a carbon tax, but it didn’t work out well6.

Stop building new fossil fuel plants

Today utilities continue to build new natural gas plants, despite flat electricity demand and renewables generally being a cheaper option. This often happens because a utility just doesn't consider renewables. Building gas plants is familiar and profitable for utilities, and some don’t look further than that if regulators let them get away with it. But to have a livable climate, we shouldn’t build any new ones: Rewiring America points out that the US might just barely hit climate targets with emissions from existing natural gas plants. There’s not room for more, and we need a standard that spells that out. Also: no one is really seriously talking about building new coal plants right now, but we definitely shouldn’t do that either. (Are you wondering about what will happen in the transition period through 2035, while we’re busy adding massive amounts of renewables and shutting down all the coal plants? The 2035 report makes it clear that the existing natural gas fleet is more than enough to maintain a reliable grid through at least 2035. As we talked about in the last post, we already have so many gas plants that many of them won’t need to operate more than a few hours a year.)

  • Estimated costs: save billions of dollars in future stranded asset costs. (More about stranded assets in a future post.)
  • Who: Congress. A federal clean energy standard on its own should make it obvious that new fossil fuel plants should not be built. To avoid any ambiguity, the legislation will need to clearly spell this out: “no new natural gas plants, no new coal plants, etc”.
  • Less good options: State public utility commissions (PUCs) are currently responsible for reviewing and approving utility construction plans. State PUCs (driven by public pressure) should continue to reject proposals to build gas plants from some of the more recalcitrant utilities. EPA regulation of carbon also could help keep fossil fuel plants from being built.

Invest in building a massive amount of renewable energy and storage

Both reports recommend government investment to quickly scale up the massive build out of new renewables (like wind and solar), while keeping electricity costs down for everyday people7. The 2035 Report (building 1TW of new renewables) suggests extending existing tax credits8. Rewiring America (4TW renewables) suggests a more generous renewable tax credit that would cover about 25% of the cost. If you’re wondering how this works - it’s not a 25% sale on buying wind turbines. Instead the companies get a tax break on their profits after they get up and running - and this allows them to pay back their loans faster and/or invest in more equipment.

  • Estimated costs: under the Rewiring America plan, the government wouldn’t collect about $1.7T in taxes on these renewable projects over ten years. Utilities would be responsible for spending the other non-tax-credited ~75% of this money — but again, they pass those costs on to ratepayers who are buying electricity from them. Electricity prices remain cheap thanks to the low cost of operating renewables.
  • Who: Congress.
  • Less good options: a clean electricity system might be possible without government financial support (assuming a federal clean energy standard), but the transformation wouldn’t happen nearly fast enough.

Set clean energy standards for buildings and vehicles

Remember that clean electricity is just the first step in the plan - we also need to quickly decarbonize our energy use in buildings and vehicles too. The 100% replacement at end-of-life path that Rewiring America recommends means every time a machine that uses fossil fuels wears out, it always gets replaced with a machine that produces zero carbon. This means that electric cars and trucks replace petroleum ones, electric heat pumps replace gas furnaces and air conditioners (heat pumps also do cooling!), electric stoves replace gas ones, electric clothes dryers replace gas ones – you get the idea.

This is probably going to be the hardest part of the plan to pull off. Rewiring America is blunt about this, stating: “a 100% adoption rate is only achieved by mandate”. But politicians tend to prefer the word “standard”. California recently set a standard requiring 100% of new cars and trucks sold in the state to be electric by 2035. We need this standard nationwide, and standards for buildings too.

  • Estimated costs: Setting a standard won’t cost the government any money directly - but it does mean that people buying replacement machines will pay a bit more for zero carbon ones. Total ten year electrification costs are estimated at $1T for residential buildings, $1.7T for vehicles, $2.5T for commercial buildings, and $500B for industrial/commercial facilities. That totals up to $5.6T over ten years. That’s a lot of money. After initially investing all of this money though, household and business spending on energy for day to day use should be significantly cheaper. Don’t worry - the next policy is about how to help people pay for it.
  • Who: Congress
  • Less good options: You could try to achieve the same thing through vehicle fuel economy standards9 (set by the EPA) and building codes (at the local and state level). But these options would likely be slower and less effective.

Help households and businesses invest in electrification

Households and businesses are going to need financial help making those investments. This is especially true because we want to get as close as possible to 100% replacement. Rewiring America estimates that it will cost the average US household about $40,000 to meet the clean energy standards above, like buying an electric car and replacing the furnace and AC with a heat pump. And obviously most people don’t have that kind of money laying around. So here’s what Rewiring America recommends we do: a mix of loan guarantee programs, rebates, and tax incentives to help residential households, commercial businesses, and industrial plants with the additional cost of purchasing zero carbon technology replacements. These programs represent the bulk of the costs involved in their plan10.

  • Estimated costs: total ten year costs for these government programs is about $1T (of the $5.6T in societal spending). One trillion dollars is a lot of money, but it buys quite a lot of stuff, and really speaks to the efficiency of the government backed loans idea. Depending on the emphasis on grants vs loans, the government might spend a bit more or less.
  • Who: Congress.
  • Less good options: You could try to set up clean energy standards with little or no government support, but I think it would make them politically impossible. And they also just wouldn’t work — because most US households simply couldn’t afford it.

Stop subsidizing fossil fuels

Neither of the plans focuses on this in detail, but it’s clearly counterproductive to continue to pour money into fossil fuels while trying to hit climate targets and spending money on clean energy. (Looking at you, DNC.) This idea is generally popular, but won’t be simple — you have to wade deep into the tax code and it’s going to be a brutal fight with the fossil fuel companies.

  • Estimated costs: save $20B every year in direct government subsidies and tax breaks we’re currently giving to fossil fuel companies. Let’s put that money towards clean energy instead.
  • Who: Congress.

Set standards for the grid

We want an electricity grid where renewables, storage, and rooftop solar flourish. Right now, these technologies have to compete on a not-so-level playing field — the current standards were pretty much all written decades ago, when fossil fuels were the only game in town. As just one example, Rewiring America points out that the cost to install rooftop solar in the US is more than double what it costs in Australia - and that much of that difference is due to US local permitting costs. The 2035 Policy Memo has many excellent and technical suggestions on exactly how to set standards where renewables, storage, and rooftop solar thrive — way too many to cover in this post. This stuff sounds arcane but it really makes a huge difference in what energy infrastructure gets built and how much it costs.

  • Estimated costs: likely cost savings for society. Traditional utilities and fossil fuel generation owners will likely fight these regulations because they profit from the way things are. Solar and wind farm owners will benefit from and advocate for these regulations. At a more local level, we need to hash out how rooftop and community solar should be permitted, regulated, and paid for.
  • Who: Federal Energy Regulatory Commission (FERC), Independent System Operators (ISOs), state Public Utilities Commissions (PUCs), state and local governments. You might be wondering what all of these acronyms are - see my explanation of “Who’s who in electricity”.

Invest in training people

Millions of jobs aren’t going to get filled at the pace we need them to without lots of training programs. This shouldn’t be a hard sell with millions of Americans unemployed because of the pandemic.

  • Estimated costs: Rewiring America proposes the government step in and double the size of US trade and technical schools - the kinds of places that teach people to become an electrician or a solar panel installer. This means giving grants to good programs we already have and starting up programs where none exist. They estimate this would cost about $16B/year.
  • Who: Congress.

Invest more in research

We have all the technology we need to get started. But we should invest in energy science and engineering for two reasons. The near term reason is that we want to make existing technologies (like batteries) even cheaper and faster to build — this is the engineering part. In the slightly longer term, we need to figure out how to eliminate the last few percentage points of carbon emissions from the grid and our larger energy system — this is what basic science research is for. Both plans call for more government R&D funding, with Rewiring America’s preference being for the bulk of the spending on near-term engineering. (This makes sense, given that they think we can get rid of 85% of emissions with current technology if we move quickly.)

  • Estimated costs: Rewiring America calls for an additional direct government spending of $10B/year on energy R&D. That’s about 10% of the current total federal R&D budget.
  • Who: Congress.

Justice for People

Democratic climate plans of the past few years have included a focus on justice for the people and communities closest to fossil fuels infrastructure like refineries, pipelines, fracking sites, coal mines, and coal power plants. Part of this focus is acknowledging the pollution that has been hurting these communities (which are disproportionately poor, Black, brown, and Indigenous) and committing to fixing the problems.

The other part is planning to replace the fossil fuel jobs that will end in these communities as we wind down these fossil fuel projects: Rewiring America estimates that one million fossil fuel jobs will come to an end. But an estimated five million permanent jobs will be created in a clean energy transition, and policy must commit to providing these good clean energy jobs in the communities where coal miners, oil and gas drillers, power plant operators, and gasoline automobile plant workers live. This means prioritizing the fossil fuel industry workers and their family and communities, investments in training, and treating those workers with empathy and financial support through this transition.

There are a lot of policy ideas for ensuring a just energy transition — for specific examples the US House of Representatives plan based on the Green New Deal is a good place to start. Big picture: we’ll need both attention to specific harms (pollution and job loss) and an overall commitment to justice that is clearly spelled out in specific policy when we’re making these investments.

  • Estimated costs: Unclear11. Fortunately there are a lot of clean energy jobs to go around in these plans — far more jobs are being created than lost. And due to the nature of renewables these jobs will be everywhere.

  • Who: Congress.

It’s actually a reasonable amount of money

To summarize how all of that money is getting spent on different policies needed under the Rewiring America plan,12 I made this chart:

policy

total spending over ten years (billions)

government share

government spending over ten years (billions)

programs

invest in renewables, storage, and transmission

$6,709

26%

$1,733

tax credits
invest in training people

$160

100%

$160

direct spending
invest in energy science

$102

100%

$102

direct spending
end fossil fuel subsidies

-$200

100%

-$200

various subsidies
vehicles

$1,700

30%

$510

rebates, tax incentives
residential buildings

$1,015

24%

$244

loan guarantees
commercial buildings

$2,450

5%

$123

tax incentives
industrial sector

$510

25%

$128

subsidies, tax incentives
total

$12,446

22%

$2,798

Here’s what it says at a big picture level: The total investment by society pencils out to be about $12.4T to do all this, over ten years. The government’s share (in the form of directly spending on R&D, giving tax credits and rebates and loan guarantees) is only about one quarter of that: about $2.8T.

The US GDP is about $20T per year — so this ten year investment is only about half a single year’s GDP. The authors note that this is cheap compared with WWII, which cost 1.5 GDPs at the time. We can afford this.

Conclusion

So that’s what a plan to get the US to a clean energy system looks like: lots of standards and investment. And attention to justice throughout. This is a big transformation, but the government spending required is surprisingly reasonable. And it will provide a livable climate, dramatically reduce pollution, and create millions of new jobs.

*Any engineering plan should include a frank discussion of risks and answer the questions “what is likely to go wrong?” and “what can be done about it?”. (I bet you can already think of an obvious one: none of this is going to happen under a second Trump administration or a Republican congress.) That’s the next post in the series. Sign up here to get an email when the next post is ready.

Notes

Thanks again to Amelia Greenhall for lots of editorial work on this post.

  1. 90% clean electricity by 2035 is a bit faster than 100% replacement for power plants - it involves some early retirements, mainly of coal plants. Coal plants are the low-hanging fruit of reducing emissions - there are only 250 of them in the US and they result in about 15% of US total carbon emissions. We’ll talk more about the cost of early retirements in a future post. 

  2. Many Republican run states have shown no desire to implement a Renewable Policy Standard. West Virginia Republicans - heavily under the influence of the coal lobby - even went so far as to repeal their RPS in 2015. 

  3. “Ratepayer” is utility-speak for everyone, or at least everyone in their service area that buys electricity from them. 

  4. Traditional regulated electricity utilities also get to take a guaranteed percentage of the additional infrastructure costs in profits. This means that utilities almost always want to build new stuff (mostly generators and transmission lines), if they convince their regulators. 

  5. This is more or less what the Obama administration tried to do with the EPA’s Clean Power Plan, which got repealed under Trump’s EPA. 

  6. The 2035 Report found that under a carbon pricing policy the range of possible outcomes (both emissions and costs) is really wide. What happens depends a lot on technology, financial, and natural gas costs - all things that we have limited control over. In many scenarios we don’t hit the 90% reduced emissions goal. Given these projections, using a carbon price as the primary policy tool seems like a bad bet. 

  7. The original idea behind renewable tax credits was to subsidize some of the higher costs of early adoption, and kick-start the industry toward lower costs. Renewable costs are already fairly low - but they are likely to get even cheaper. Rewiring America estimates an additional halving of renewable costs from where they are today if we build them out at massive scale. 

  8. Existing wind and solar production tax credits currently cover between 10-20% of the levelized cost. The 2035 policy paper also has some detailed policy suggestions about how to make production tax credits more efficient. 

  9. As of Sept 2020, the Biden campaign website suggests using “rigorous” vehicle fuel economy standards to get to electrification. 

  10. The 2035 Report also points out that some domestic manufacturing of solar cells, wind turbines, and EVs could be encouraged by direct government loan programs, but doesn’t give an amount. These direct government loan programs (like the ones used in the Great Recession recovery) are slightly different from the loan guarantees that Rewiring America talks about. In the first case, the government fronts the loan principal, while in the second the government just insures the loan made by a regular bank (just like federally backed mortgages). 

  11. To get a rough ballpark, the US currently spends about $1B per year on Superfund cleanups. Job transition and unemployment costs are less clear because the US does not support workers well today. Again, to get a very rough idea - total US unemployment claims were about $24B per year before the pandemic. 

  12. I compiled these numbers from the Jobs Report, Tables 4-10 and Table 12, and added in a $20B/year credit for ending fossil fuel subsidies. 


To get an email when the next post comes out, sign up here!