Manchin’s budget offer can help America fight inflation and climate change
Last week, Joe Manchin shared his outline for a deal on fiscal reconciliation: spend on climate, reduce inflation, and raise enough money to cover both. This moment cannot be wasted if we hope to avoid dangerous climate change while fighting rising prices for American consumers.
Although Manchin’s framework falls short of what is needed on climate change, it is an important down payment for a secure climate future. Investing in clean energy is exactly how this country can reduce inflation and planet-warming emissions in one breath.
Clean energy as an antidote to inflation
In his State of the Union address, President Biden announced that clean energy provisions being discussed in the House and Senate could save each American household an average of $500 a year. when combined with federal and state policies that meet the nation’s 2030 emissions reduction goal, backed by independent analysis from Rhodium Group.
The average U.S. household spent about 2% of its pretax income on electricity in 2020 and 3.3% on gasoline in 2018. Relief couldn’t come better, with rising natural gas and oil prices, as well as the moral imperative to reduce the political power of global oil and gas despots like Russian Vladimir Putin.
Cheap renewable energy is inherently deflationary – increasing renewable energy resources reduces reliance on volatile commodities like oil and gas. Relying more on solar, wind and hydropower means that more and more of our energy prices become fixed and immune to inflationary pressures, as these resources are not subject to fuel inputs. and generate electricity for decades once operational. The industry’s rapid growth is generating further price cuts, as we’ve seen with massive solar power price declines of more than 90% since 2010. Electric vehicle (EV) owners will also benefit from the stability and predictability of electricity prices, while gasoline is subject to oil. price volatility.
Clean energy and electric vehicle tax credits will amplify this deflationary pressure by reducing household energy costs and accelerating our transition from fossil fuels in the electricity and transportation sectors. These tax credits would reduce the direct costs of wind, solar, nuclear, carbon capture, energy storage and transmission, with cost savings passed on to households and businesses by reducing consumers’ energy bills.
Tax credits are key to lowering energy prices for all Americans
Clean electricity tax credits have been arguably the most effective US climate policy in helping the wind and solar industries grow rapidly. They are also among the most cost-effective climate policies available to Congress. A recent analysis co-authored by University of Chicago economist Michael Greenstone found that the social benefits of the policy, such as avoided climate impacts, far outweigh the cost by $335 billion to $1.8 trillion. dollars.
Clean electricity tax credits proposed in the House-passed version of the Build Back Better Act would push the United States from about 40% carbon-free electricity in 2020 to near the goal of the President by 80% by 2030, essential to achieve our national goal of 50 to 52% reduction in carbon emissions. Analysis by Resources for the Future finds that tax credits would increase the share of carbon-free electricity in the United States from 40% today to 69% in 2030, and the Energy Policy Simulator Innovation estimates that this would approximately quadruple the current installations of renewable energy capacity in the United States. Meanwhile, a study led by Princeton suggests the package could push the United States up to 83% clean electricity by 2030.
As they strike a deal, Congress needs to be sure to incorporate a few simple design elements to maximize the cost savings and emissions reduction potential of clean electricity tax credits, starting with the duration of their availability.
Tax credits have historically lasted for brief periods of one to two years, with frequent forfeitures or last-minute extensions creating booming development cycles that undermine the rationale for investing in domestic manufacturing and develop clean energy businesses. Congress should create a longer-term signal with a 10-year tax extension, as it provides much-needed commercial certainty, further reducing costs as developers secure lower funding rates and build supply chains stronger nationals.
Congress should also allow developers of clean energy projects to receive cash grants rather than tax credits. Cash grants circumvent the wasteful practice of tax equity financing, which diverts one-third of tax credit revenue from promoters who often must seek tax liability from financial institutions to qualify. With inflation in mind, it is more imperative than ever that every dollar spent by the federal government on clean energy goes directly to consumers, rather than to financial institutions.
Finally, Congress should expand the scope and flexibility of the appropriations, allowing all crucial enabling technologies, including energy storage and transmission, to qualify for either type (investment or generation) credit. This would level the playing field between clean energy technologies, promoting resource diversity and its associated benefit of greater power grid reliability.
The Road to Electric Vehicle Tax Credit Success
Electric vehicle tax credits also reduce consumer costs while reducing demand for foreign oil, replacing high gas prices that squeeze families’ budgets with electric drives that use cheaper fuel ( electricity) with much greater efficiency.
Sales of electric vehicles in the United States have increased by 83% in 2021, and many models already cost less to own over the life of the vehicle than their gas-powered counterparts. However, families may face hurdles in the form of higher upfront costs today, making fuel savings out of reach. While initial cost parity is expected to be achieved by the mid-2020s, American families today need price relief.
Electric vehicle tax credits would help families overcome this barrier. Rhodium Group analysis suggests EV incentives in the House climate package would accelerate EV sales 63% nationwide by 2030 – an indication that incentives are effectively increasing access to savings from VE.
Additionally, credits designed to apply only to vehicles under a predetermined retail price, or with reasonable revenue caps, can ensure that federal money supports those who really need it, while putting more electric vehicles on the road.
Another barrier for customers, particularly tenants, is access pricing. Funding proposals being discussed would increase charging infrastructure in our communities, with the goal of creating an equitable distribution for more common use.
Manchin and Congress can meet the moment
Significant and long-term extensions of tax credits for clean energy technologies and electric vehicles are essential. With Manchin’s support, the window is now open for the most significant climate legislation in American history, while reducing reliance on foreign fossil fuels.
Dan Esposito, Senior Energy Innovation Policy Analyst, also contributed to this article.