Can the US reach Biden’s climate goal without the CEPP?

Last week, Sen. Joe Manchin (D-WV) finally stopped playing games
and said that he will not vote for a budget reconciliation bill
that contains the Clean Electricity Performance Program (CEPP).


You can read my interview with Sen. Tina Smith (D-MN) for more on
the CEPP and this post to understand why it is so centrally
important to serious climate policy. I won’t get into all those
arguments again. Suffice it to say, it’s a good policy and losing
it is bummer.


Insofar as Manchin has offered any reason for killing the CEPP,
it is an alleged concern over “using taxpayer dollars to pay
private companies to do things they’re already doing.”


But that is just incorrect.


Utilities are not “already doing” what the CEPP requires, i.e.,
increasing their share of clean energy 4 percentage points
year-on-year, every year. Only a tiny handful of the nation’s
thousands of utilities are on that trajectory.


The sector as a whole is slowly decarbonizing, but the whole
point of the policy is to accelerate the process to meet US
carbon targets.


Manchin knows that. It’s precisely what he’s trying to prevent.
He told CNN flat out, “I'm not going to sit back and let anyone
accelerate whatever the market's changes are doing.”


Why not? Well, he wants to keep fossil fuel power plants open,
which is incompatible with Biden’s publicly stated goal of 50 to
52 percent carbon reductions from 2005 levels by 2030.


Manchin is standing up for local fossil fuel interests (including
his own) against the president, 49 of his colleagues in the
Democratic caucus, a majority of legislators in the House, a
majority of voters, and even a majority of West Virginia voters.


He also wants to slash the child tax credit. He’s just a jerk. It
is what it is.


At this point, it’s unclear what will and won’t survive into the
final Build Back Better Act (or whether there will be a final
bill at all). Reports are that staffers are scrambling to find
ways to make up the lost emission reductions through other
policies.


The question is, how big of a hole are they trying to fill? How
big a hit is it to lose the CEPP?


A few analyses released in the past week are helpful in getting
our heads around this.


Energy Innovation says the loss of CEPP could cost the bill up to
35% of its emission reductions


The first is from research firm Energy Innovation, which uses its
Energy Policy Simulator to determine how much emissions would be
reduced by the policies in the House Democrats’ version of the
Build Back Better Act and the bipartisan infrastructure bill that
was passed by the Senate over the summer.


Obviously, predicting circumstances a decade hence is a fraught
undertaking. Energy Innovation ran four scenarios: a
business-as-usual scenario, with only existing policies, and low,
moderate, and high emission-reduction scenarios based on
different assumptions about the price of energy and the efficacy
of various provisions in the bills.


They didn’t model all the policies in the bills, just the ones
that are relatively easy to quantify. Some emission reductions
have gone uncounted, so the estimates Energy Innovation produced
are almost certainly a lower bound.


Here are the topline results:


In the high scenario, clean energy reaches an 85 percent share of
US electricity by 2030; in the moderate scenario, it’s 80
percent; in the low scenario, about 70 percent.


As you can see in the moderate scenario below, by far the biggest
tranche of emission reductions (about half) would come from the
combination of the CEPP and clean-energy tax credits:


The good news is that passing both bills could, “with supporting
state and regulatory policy,” at the high end of the high
emission reduction scenario, just barely get the US to its 2030
target. That’s if everything is included in the bills.


The question now is, what do those numbers look like without the
CEPP?


Luckily, Energy Innovation ran a couple of variations of its
moderate scenario with no CEPP (a high one, which assumes tax
credits are maximally effective, and a low one, with lower
take-up of tax credits).


Long story short, “emissions are likely to be 250 to 700 MMT
higher per year in 2030” than they would be with the CEPP, “which
could eliminate more than a third of the total emissions
reductions under the Infrastructure Bills.”


As the scenarios show, a great deal depends on factors that can’t
be precisely predicted: the price of fossil fuels, the cost
curves of clean technologies, and the efficacy and impact of the
clean-energy tax credits and other BBB policies. The loss of the
CEPP could reduce the emissions impact of the bill anywhere from
20 to 35 percent.


Resources For the Future agrees but says a carbon fee could make
up for it


Energy Innovations’ findings jibe with the second analysis, from
Resources for the Future (RFF). RFF modeled three policies, in
various combinations:


* the clean-energy tax credits, which it calls CEAA for the
“Clean Energy for America Act,” a bill from Sen. Ron Wyden (D-OR)
that is largely included in the BBB Act;


* the Clean Electricity Performance Program (CEPP); and


* a carbon tax (er, fee) — the “central” carbon fee “starts at 15
$/metric ton and increases gradually to 30 $/metric ton by 2028,
followed by a $10 annual increase through the end of the modeling
period (2045).”


The CEAA tax credits alone, without the CEPP, gets the
electricity sector to a 69 percent clean energy share by 2030.
That is roughly in line with Energy Innovations’ high-end
estimation of the tax credits’ impact.


The CEAA plus the CEPP gets the sector to 78 percent clean energy
— a 9 point bump.


The CEAA, CEPP, and the central carbon fee together get to 91
percent.


RFF’s model, like Energy Innovations’, shows that the tax credits
are doing the bulk of the work. From a baseline (no policy)
scenario, the tax credits take the clean-energy share in 2030
from 46 to 69 percent (+23); with the CEPP, it goes from 69 to 78
percent (+9).


Notably, in RFF’s modeling, the tax credits plus a central carbon
fee get the number to 79 percent — in other words, a carbon fee
pretty neatly substitutes for the CEPP, emissions-wise.


Nonetheless, despite some recent chatter, Manchin has already put
the kibosh on the prospect of a carbon fee as well.


Rhodium Group says the US climate target is still within reach


Can the US get on track to its 2030 target without the CEPP? For
some insight on that we turn to the other recently released
analysis, from the research firm Rhodium Group.


It sets out to determine whether the US can hit its target
(again, 50 to 52 percent reductions from 2005 levels by 2030)
with what it calls a “joint action scenario,” which includes
“actions by all key actors in the US federal system, including
legislation under construction in Congress, regulations and other
actions that can be taken by the Biden administration and key
departments, as well as actions by climate-leading states and
corporations.”


Importantly, though it is capacious, the joint action scenario is
deliberately conservative about policy out of Congress, given
Manchin’s well-known Manchinness: “We include tax credit
extensions, clean energy grant programs, and spending on
agricultural programs, but do not include a carbon or
methane fee or the CEPP [my emphasis].”


The good news is that the CEPP-less joint action scenario gets
the US to its goal, or at least close to it.


Even without the CEPP, it is the electricity sector that provides
most of the reductions:


One reason there are so many reductions in the electricity sector
— and this brings us to what I suppose is the bad news — is that
the joint action scenario includes a lot of policies, including
standards on new and existing power plants from EPA. Getting to
the US target requires all levels of government and the private
sector to act with immediate ambition.


This is the action required by Congress:


This is the action required by the executive branch:


And this is what’s required of “subnational groups,” i.e.,
states, cities, and companies:


If all of that comes together, then the US can hit its 2030
climate target without the CEPP.


Rhodium stresses that the joint action scenario is not the only
path to that goal — the final section of its analysis suggests a
range of other policies that could also help — but any path to
the goal involves coordinated action taken on numerous fronts at
once … and a lot of luck.


Where does this leave us?


For years now, it’s been one of the climate world’s great
rituals: after every new setback, delay, or disappointment,
there’s a rush of articles and models showing, “We can still do
it! It’s not impossible yet!”


I suppose this is another one of those posts. Even without the
CEPP, the two infrastructure bills passed together would reduce
emissions considerably. The loss of the CEPP would take a big
chunk out of those emission reductions — more than a third, if
things go poorly — but there’s a chance some of that can be made
up with other policies.


This is assuming the BBB bill doesn’t get worse. Manchin may not
be done screwing it up yet. The top priority now should be
protecting the full range of clean-energy tax credits and
ensuring that a) they extend at least 10 years and b) they are
fully refundable.


And other policies must be protected as well. Here, according to
Energy Innovation, are the next most effective policies after the
CEPP + tax credits.


The second strongest provision is the fee on oil and gas methane
emissions, which contributes about 12 percent of total
reductions, or 165 MMT in 2030. Incentives for electric vehicles
(EVs) and charging equipment are next, at 115 MMT in 2030, or 9
percent of total reductions.


I tend to doubt Congressional staffers will be able to find
anything new that’s big enough to compensate for the loss of the
CEPP, but Biden can also gain back some of those reductions
through aggressive use of the EPA and other agencies. We’ll see
if he has the moxie to do that.


The US doesn’t need to worry that hitting its target is
unaffordable. All three analyses show that decarbonizing the
electricity sector will reduce consumer energy costs, and that’s
not even including the enormous benefits of reduced air
pollution, which themselves would easily pay for the transition.


Nonetheless, rapid decarbonization is a huge, wrenching
socioeconomic transformation. Hitting our target would be a
heroic feat. The fastest the US has ever reduced emissions,
outside of a recession, is 4.1 percent in 2012. To get to 50
percent reductions by 2030, Rhodium says, “requires a 5.2-5.6
percent year-on-year cut in emissions every year.” We have to go
faster than we’ve ever gone, every year from now through 2030.


And that’s only the first, and arguably easiest, step. The first
50 percent of reductions will be easier than the last 50 percent,
which we need to eliminate by 2050. That will require new
policies, technologies, and industries.


In the grand scheme of things, the loss of the CEPP is not the
end of the world, as irritating and indefensible as it is. As
long as Manchin doesn’t do any more damage, as long as staffers
scrabble together a few compensatory policies, as long as Biden
uses executive agencies aggressively, as long as states, cities,
and businesses continue acting ambitiously … well, as long as all
of that happens, we still have a shot.


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