America needs a climate plan compromise

President Biden’s Build Back Better agenda is making its way through Congress via a budget reconciliation bill — a once-in-a-generation opportunity for America to reassert its leadership in combating the climate crisis. But a major part of the effort is jeopardized by disagreements over the Clean Electricity Performance Program (CEPP), which would subsidize electric utilities that increase the share of clean energy they produce while penalizing those that do not. This provision could be responsible for up to one-third of the emissions reductions in Biden’s climate agenda, so lawmakers must either find a way to compromise on the CEPP or replace it with a policy that can achieve similar emissions reductions.

Negotiators are reportedly considering dropping the CEPP over concerns from Sen. Joe Manchin, (D-W. Va.), who not only holds the crucial 50th vote Democrats need to pass the bill through the Senate but is also chairman of the Senate Energy Committee that has jurisdiction over the CEPP provisions. Manchin says he is concerned that the program would only subsidize transitions that are already taking place rather than encouraging the adoption of new renewable energy sources. He’s also concerned that the program would hurt states like West Virginia that are heavily dependent on natural gas and coal by requiring them to adopt expensive technologies like carbon capture and storage (CCS) without offsetting the costs. And he has noted the opposition of some major electric utilities over cost and reliability worries, although the industry is somewhat divided on the bill.

Whether climate hawks agree with these concerns or not, the reality is that any climate policy must address them to become law. Because of the work that has already gone into developing the policy, and Manchin’s chairmanship of the relevant committee, we believe the clearest path forward is for Manchin and fellow negotiators to modify the CEPP so that it addresses his concerns while meeting the science-based targets necessary to retain the support of other Democrats.   

Under the bill that emerged from the House Energy and Commerce Committee, electricity generators who increase clean electricity by 4 percent would receive $150 for each megawatt-hour above 1.5 percent of the previous year’s clean energy generation. Generators that don’t fulfill the target must instead pay $40 per megawatt-hour according to their clean energy shortfall. Clean electricity is currently defined in the bill as having a carbon intensity of .10 metric tons of carbon dioxide equivalent per megawatt-hour — which would exclude natural gas and coal even with CCS technology

A compromise as proposed below that meets the concerns of all negotiators would likely center around specific changes to three provisions:

• First, the requirement for annual clean electricity growth by utilities could be reduced from the current 4 percent to 3 percent to make it easier for utilities to hit their targets
• Second, the subsidy for utility compliance with this requirement could be reduced by an equivalent 25 percent, or the total payment an individual utility might receive could be capped if they are far ahead of their target
• Third, the carbon intensity standard could be increased to .20 carbon dioxide equivalent per megawatt-hour so gas and coal with CCS could more easily qualify for the subsidy.

These changes would seem to address the primary objections Manchin and many major electric utilities have raised while still enabling the CEPP to achieve most of the emissions reductions from the original proposal. This compromise would also reduce the current $150 billion cost of the program, freeing up resources for other climate programs that could make up for lost emissions reductions. And, as the president has pointed out, his broader climate agenda including the CEPP will create millions of new jobs in clean energy. But if a compromise on CEPP can’t be reached, lawmakers must explore other economic alternatives that can achieve similar emissions reductions and job creation.

One alternative reportedly being considered is a carbon tax paid by utilities and other producers of fossil fuels on their emissions (which wouldn’t violate Biden’s pledge not to raise direct taxes on families making under $400,000 a year). The most common proposal is to use the revenue created by this tax to send everyone a flat per-person rebate check to compensate for higher energy costs.

People with below-average emissions would be financially better off, while those who pollute would pay for the costs. Even though energy costs are a larger share of income for poor people, this policy is net progressive because higher-income people tend to have greater total emissions (other policies in the tax code, such as a larger Earned Income Tax Credit, could also help ensure the system is progressive).

Manchin has said in the past that he is open in theory to carbon pricing but generally skeptical of this approach because it would hurt West Virginia and because he doesn’t believe it would increase technological innovation. To resolve these concerns, we propose that only half the revenue from a carbon tax be used for means-tested per-person rebates. The other half would be allocated to states for green-energy projects based on a formula that ensures no state loses more in carbon tax revenue paid than it receives in personal rebates plus state project funds (similar to how the Highway Trust Fund allocates gas tax revenue).

This approach ensures that the states most dependent on fossil fuels receive the most help in moving toward greener technologies, whether that’s renewable energy or CCS. Each state could use the money as makes most sense for their energy economy. The policy would also be politically popular: 60 percent of respondents in a poll of battleground state voters conducted last year by the Progressive Policy Institute supported a carbon tax and most of them wanted the revenue to be used for green infrastructure projects. 

Worth noting that a @PPI poll of battleground state voters conducted last year found clear support for financing green infrastructure/R&D investments with a carbon tax – the pairing was even more popular than doing either policy on its own! https://t.co/6w8unvFu3M pic.twitter.com/G0gsRip0Dw

— Ben Ritz (@BudgetBen) October 18, 2021 

But to discourage states from prolonging the use of dirty technologies to boost revenue collections, they should be put on a clock: after five or 10 years, the state project payments would either phase out or be based on a formula that does not risk giving more money to states with higher emissions. State project payments should also be capped at the amount they received the previous year so that no state receives a financial incentive to increase emissions.

The climate crisis is already inflicting hundreds of billions of dollars a year in costs to the U.S. economy, while killing many of our people and others around the world. These climate consequences will get far more deadly and costly unless America leads the world to act. The compromises we propose here can reassert America’s climate leadership while meeting the legitimate concerns of all negotiators working to enact the president’s climate and economic plan. We implore negotiators to consider these paths forward to help achieve this desperately needed legislation.

Paul Bledsoe is strategic adviser at the Progressive Policy Institute. He served on the White House Climate Change Task Force under President Clinton.

Ben Ritz is the director of Progressive Policy Institute’s Center for Funding America’s Future.