A Combination of Proposed Reconciliation Policies Could Achieve US Climate Goals and Reduce Consumer Electricity Costs
New modeling finds that clean energy tax credits, the Clean Electricity Performance Program, and a carbon fee—which are all under consideration for the budget reconciliation package—could together reduce more than 18 billion metric tons of carbon emissions in the power sector by 2040 while also reducing consumer electricity costs.
A new issue brief from a team at Resources for the Future (RFF) finds that a combination of three policies being considered for the budget reconciliation process could reduce emissions, save money for electricity consumers, and meet the Biden administration’s “80x30” clean energy goal.
In their analysis, authors Nicholas Roy, Dallas Burtraw, and Kevin Rennert assess the electricity sector effects of several policy options: the Clean Energy for America Act (CEAA) tax credit extensions, the Clean Electricity Performance Program (CEPP) alongside the tax credits, and two versions of a $15/metric ton carbon fee that increases gradually over time (a “central” case fee and a less stringent “alternative” fee). Notably, the model focuses on the power sector, where the lowest hanging fruit for emissions reductions in the United States exist, and does not estimate the economy-wide effects of these policies. Economy-wide effects have been studied previously in another recent issue brief.
The authors find that a combination of all three policy options—tax credits, the CEPP, and a carbon fee—would lower electricity costs for consumers. Tax credits and the CEPP would cut retail electricity prices, and a carbon fee alone would increase them. The combination of the three policies yields a reduction in costs overall.
“Tax credits and the CEPP combined lead to a reduction in costs for consumers but fall short of the Biden administration’s clean electricity goals for 2030,” Burtraw said. "The addition of a carbon fee to these policies brings electricity costs back up slightly, but they remain well below baseline levels. And that policy combination yields an emissions outcome that surpasses the president’s goals.”
All the modeled policy options would reduce electricity sector emissions by billions of metric tons over the next two decades. But tax credits, the CEPP, and a carbon fee together would reduce emissions the most: 7.7 billion metric tons of reduced carbon dioxide by 2031 and 18.35 billion metric tons by 2040 compared to the baseline. Clean energy tax credits alone would reduce emissions by 9.42 billion metric tons by 2040.
Although all these policies would result in electricity sector emissions reductions, the only policy mixes that would result in an electricity grid that produces more than 80 percent clean generation by 2030 incorporates tax credits, the CEPP, and a carbon fee.
“Reaching 80 percent clean energy by 2030 is a meaningful goal. It is just a question of how the country will do it and who will face the costs,” Roy said. “If implemented correctly, the combination of policies being discussed are capable of reaching that goal, saving money for ratepayers, and mitigating shortfalls of any one individual policy.”
See the table below for more details on various policy mixes and their effects on clean electricity generation, emissions reductions, and consumer energy costs.
For more, read the issue brief, "Cost Analysis and Emissions Projections under Power Sector Proposals,” by RFF Research Analyst Nicholas Roy, Senior Fellow Dallas Burtraw, and Fellow Kevin Rennert.
For other reconciliation package-related modeling on the CEPP, clean energy tax credits, and carbon fees, read the RFF issue brief, “Emissions Projections under Alternative Climate Policy Proposals.”
Resources for the Future (RFF) is an independent, nonprofit research institution in Washington, DC. Its mission is to improve environmental, energy, and natural resource decisions through impartial economic research and policy engagement. RFF is committed to being the most widely trusted source of research insights and policy solutions leading to a healthy environment and a thriving economy.
Unless otherwise stated, the views expressed here are those of the individual authors and may differ from those of other RFF experts, its officers, or its directors. RFF does not take positions on specific legislative proposals.
Dallas Burtraw is a Darius Gaskins senior fellow at RFF. Burtraw’s research includes analysis of the distributional and regional consequences of climate policy and the evolution of electricity markets including renewable integration.
Nick Roy is a Research Analyst at RFF where he analyzes an array of policies including clean energy tax credits, renewable energy standards, and emissions pricing.