A Dummy’s Guide to Decarbonize America

Author: Derrick Cui, Graphics: Nina Tagliabue

The BRB Bottomline

Biden’s two big spending bills with an estimated $3 trillion price tag are large, ambitious projects to modernize the US with the focus of decarbonization. Yet many say it’s not enough. 

Biden’s two big spending bills with an estimated $3 trillion price tag are large, ambitious projects to modernize US infrastructure, healthcare, and energy all with the focus of decarbonization. Yet many say it’s not enough. 

US Indecisiveness

COP 26, the 2021 United Nations Climate Change Conference, ended with big promises but few actions. Perhaps the biggest cause of this inaction is governments wondering who will pay for this. Rich countries point to developing one’s by encouraging them to decouple growth with emissions while developing one’s point at rich ones that should both lead by example and have more aggregate emissions. 

America is the poster child to this indecisiveness and inaction. President Obama signed the Paris Agreement but then struggled to get any legislation through. President Trump repealed many environmental laws and encouraged private companies to drill for fossil fuels. President Biden’s $1.2 trillion Bipartisan Infrastructure Deal that recently passed is, at last, progress. The bill earmarks $89.9 billion for public transit, $66 billion in rail funding, $7.5 billion for building out the electric vehicle charging network, $65 billion in clean energy construction and subsidies, $50 billion to make infrastructure more resilient to climate change and investing in weatherization, and $21 billion to clean up uncapped gas and oil wells and pipes. Biden also wants to pass the $1.85 trillion Build Back Better Act which recently passed the House for a total of $3 trillion spent over 10 years. That bill sets aside $555 Billion for clean energy and climate investments. It contains big spending packages to electrify energy consumption while making energy production much more climate-friendly. The goal is to reduce emissions 45% below 2005 levels by 2030 (projected by the office of Senator Chuck Schumer). The two most notable programs in the energy industry (energy pollutes the most), is the Clean Electricity Performance Programme (cepp) which are mandatory clean-electricity standards that reward improvements in emissions for energy companies, and a change in tax credits to make tax breaks that make them refundable, meaning they do not need to be offset against tax liabilities. The latter program is especially important as it allows companies without large tax liabilities to receive, essentially, cash for good environmental changes.

Figure 1: Infographic provided by the office of Senator Chuck Schumer (Senate Majority Leader D-N.Y.) on how these two plans (Infrastructure Deal and Build Back Better) would reduce emissions by 45% below 2005 levels by 2030. 

45% or Bust

The big question: is it enough? 

Some say the projections are way too optimistic and make bold assumptions on how private companies will willingly choose to spend more on green energy. Most say that the US could do more. Yet the 50-50 split in the senate and moderate Democrats pushing to water down bills in the name of fiscal responsibility means Biden is limited by the number of possible programs to implement. So perhaps he is right to focus on broad subsidies and taxes as a way to incentivise the private sector, state governments, and local governments to create specialized programs to do the rest. 

Figure 2: A flow map representing the path carbon dioxide was emitted in the US in 2019.

What could the US do if it was not politically locked? The list is long but a glance across the Atlantic provides some clues. First of all, a carbon tax (like Sweden’s or Canada’s) puts a price on carbon emissions, incentivising companies to decarbonise quickly. The money raised can either go to local and state governments that can subsidize their state-specific climate programs or can be given directly back to citizens in a carbon rebate. An emissions trading scheme (like the European Union Emission Trading Scheme or EU ETS) lets companies buy and sell the “right” to emit carbon, using a stock-market like system to also incentivise decarbonization.

More Money, More Problems

A big problem of decarbonization is the fact that green technology is still very much in its infancy. Though prices are falling fast, it is still difficult to predict which parts of the energy cycle are easiest to decarbonize and which are not. A $100 million funding opportunity made by Biden to fund R&D is a good start but is far from enough. Private funds have come to the rescue. A boom in venture capital spending (projected $580bn this year) on high-risk startups has helped fill the gap with private equity, pension, and other funds willingly funding far-fetched and expensive companies, some of which focus on decarbonization and environmental concerns. Technologies like carbon capture, fusion energy, modular fission energy, emission-less steel, meat-less meat, battery energy storage, hydrogen energy, AI to detect emission leaks, better insulation, solar panels, wind turbines, green cement are still young and their effectiveness unknown. 

Decarbonization is an all-hands-on-deck task, requiring both governments and companies to reach into their deep pockets. Yet Biden’s pledge to reduce emissions by 50% from 2005 levels by 2030 is entirely possible. Only time will tell how much policy Biden can pass and how effective new decarbonization technology becomes. 

Take-Home Points

  • United States passed the largest spending bill in history with an even larger one coming up with a culminating price tag of $3 trillion over 10 years
  • The bills have a focus on decarbonization, with large changes to subsidy and taxation programs that will significantly encourage companies to reduce their emissions
  • The US could be doing a lot more, from a carbon tax to an emissions trading scheme
  • Private companies have taken it upon themselves to decarbonize, with big VC’s and funds backing startups that focus on decarbonization

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