Ann Arbor (Informed Comment) – In a huge surprise on Wednesday, Senate Majority Leader Chuck Schumer (D-NY) and the Chairman of the Senate Energy and Natural Resources Committee, Joe Manchin, announced an agreement on a package of legislation that includes an unprecedented $369 billion to encourage green energy and cut carbon dioxide emissions, on a line called Energy Security and Climate Change. The draft summary says that this element of the bill “Lowers energy costs, increases cleaner production, and reduces carbon emissions by roughly 40 percent by 2030.” The over-all bill is called “The Inflation Reduction Act,” which is fair for reasons I’ll explain below.
The full draft bill was released on Wednesday night.
The bill falls slightly short of President Biden’s goal of a 50% reduction in annual carbon dioxide emissions over 2005 levels by 2030. The US spewed out 6 billion metric tons (mt) of carbon dioxide in 2005, so Biden’s goal is to get down to 3 billion mt in 8 years. The US produced 4.87 billion mt of carbon dioxide in 2021, so we have a long way to go. Emissions were actually up 6% last year.
So this bill, if it can get past the Senate parliamentarian and pass both the House and the Senate (chances are excellent), will reduce US CO2 by 2.4 billion metric tons a year to 3.6 mt per year.
Manu Raju, Ella Nilsen and Tami Luhby at CNN report that the bill retains electric vehicle (EV) tax credits (“up to $4,000 for a used electric vehicle and $7,500 for a new EV”). Manchin had been dead set against this measure, but apparently was mollified by a cap on income level for receiving the benefit. The transformation of the Big 3 in Detroit into electric vehicle powerhouses is a prime goal of President Biden, and one can only imagine that horses were traded for Manchin’s acquiescence on this one.
As for fighting inflation, green energy does that, as Mark Lewis argued in the Financial Times. Gas, oil and coal are inflationary. It is harder and harder to find new deposits, so prices have to go up to fund exploration and drilling and transportation of the fossil fuels. Solar and wind energy are inherently deflationary. So too are electric vehicles, which have rapidly fallen in price and will fall still further, perhaps to as little as $6,000 in ten years. Driving your gasoline car is expensive. Driving an electric car is cheap. When I had leased one I just plugged it in at home and didn’t even notice a difference in my electric bill — though I also have solar panels; my May electricity bill was minus $5.
Or take solar, where, Lewis says, “over 2010-19 the average cost of utility-scale installations fell by 80 per cent.”
The average cost of a new gas or nuclear plant did not fall 80% over that period; it went up.
As wind turbines have gotten bigger and more efficient, the cost of wind-generated electricity has also fallen significantly.
The future is clear, or even just the present.
- “During the first quarter of 2022, renewable energy sources provided a whopping 97.4% of new domestic electrical generating capacity and 24.4% of actual generation. Fully, 100% of the new electricity generation capacity brought online in the United States in March 2022, came from renewable energy sources.”
The industry is overwhelmingly voting with its feet, in a rush toward renewables. That’s because renewables are just cheaper to install and use for electricity generation per kilowatt hour. Deflationary. Even in the absence of big federal intervention before now, regulations and goals set at the state level in places like California and New York have been important.
In fact, because renewables and EVs are deflationary and increasingly unbeatable in market competition, my guess is that we will still get to a 50% reduction in CO2 by 2030, even if the Inflation Reduction Act doesn’t get us there by itself. 20% of Americans live in California and New York, and those states are going green fast.
President Biden’s big build-out of offshore wind through federal licensing of waters off the coasts will also have a huge impact and that was happening before this bill. It could be providing electricity to 20 million of the 122 million American households by 2030.
Although other countries have set ambitious carbon reduction goals, this legislation makes the US a global leader in actually backing those goals with massive government spending and credits to businesses that go green. Up until now, the US government was notable mainly for its refusal to take the climate emergency seriously, and for a failed president, Trump, who actually pulled the US out of the Paris Climate accords and wanted to dirty up, and heat up, the atmosphere to the boiling point.
Some member states of the European Union have reduced carbon dioxide emissions from 2005 levels quite substantially, as with Germany, but much of this progress has been through carbon regulation and taxes rather than spending billions to goose the green energy sector.
In fact, the likelihood is that Biden, who spent his life as a senator, played a central behind-the-scenes role in turning Manchin around and keeping the Democratic Party Senators together on this pared-down version of Build Back Better. Biden’s legislative accomplishments, not to mention his administrative ones, will likely end up being very impressive for the first two years of his presidency.
in matters of climate, every ton of CO2 you don’t put into the atmosphere is a decrease in how hard life will be for our grandchildren. They will have reason to be grateful to President Biden and the Democratic Party if this bill becomes law.