Federal Climate Initiatives
SEPTEMBER 8, 2021
K2P offers thorough explanations of federal climate policy (chapters 7-10), but given the book’s timetable its focus is necessarily on the 116th Congress (2019-2020) and earlier. This post provides an update at a critical moment, addressing the prospects for Congress and the executive branch to transform the energy economy and mandate quantitative emissions reductions. What happens in the remainder of 2021 will strongly influence how well the US can play its crucial role in bringing about global net-zero emissions by mid-century.
Democratic control of the Presidency and both houses of Congress has created a window of opportunity for climate action, but it is precarious given the razor-thin majorities in the House and Senate and the unwillingness of Republicans to vote for the most impactful legislation. Presently, the defection of just four Democrats is enough to sink aggressive legislative initiatives in the House of Representatives, while the objections of just a single Democrat can torpedo bills in the Senate. Democrats may not be able to maintain full control in the 118th Congress (2023-2024), and the exigencies of political campaigning could curtail ambitious actions in 2022. With these considerations in mind, the Congressional leadership is moving as quickly as it can while also negotiating the realities of a split caucus where moderates and progressives do not always agree on substance or political process.
Federal climate initiatives are occurring, of course, within the context of a great deal of other ambitious work to address the challenges of the pandemic. Within a year, Congress enacted three enormous COVID relief packages: the $2.2 trillion Coronavirus Aid, Relief and Economic Security Act (public law 116-136; CARES Act) in March of 2020, the $900 billion COVID relief supplement contained within the Consolidated Appropriations Act (public law 116-260) in December of 2020, and the $1.9 trillion American Rescue Plan Act (H.R. 1319) in March of 2021. Much of this money went to direct payments to citizens, child care, aid to state, local and tribal governments, and a variety of other spending programs, all intended to cushion the economic effects of the pandemic. Some allocations related to climate were provided to agriculture, transportation and environmental justice, but for climate advocates, the main reason to be aware of these bills is the unprecedented amount of funding, totaling $5 trillion within just one year. These outlays influence the current political debate for climate legislation, because some influential Democrats in the moderate wing of the party are signaling reduced appetite for further spending.
In addition to $900 billion for pandemic aid, the Consolidated Appropriations Act also funded the federal budget for 2021, to the tune of another $1.4 trillion. While not a climate bill per se, this budget legislation nonetheless provided monies for a variety of initiatives that should stimulate lowering of greenhouse gas emissions, some of which will be built upon in the infrastructure and budget reconciliation bills that Congress is considering now (see below). The green energy programs in this bill are of particular interest. In addition to providing substantial funds to research and develop renewable energy and energy storage technologies, the Act made permanent a tax deduction for construction of energy efficient buildings, extended the solar energy investment tax credit for two years and the wind energy production tax credit for one year, and introduced a new investment tax credit specifically for offshore wind projects that begin construction through the end of 2025 (for details of these credits, see here). The bill also extended the tax credit for carbon sequestration for two years. Finally, in a huge win for the climate, the bill included provisions mandating that the US follow an international timetable to sharply reduce emissions of hydrofluorocarbons (HFCs) to 15% of 2012 levels by 2036. HFCs are extremely potent greenhouse gases that are emitted from commonly used refrigerants.
The Biden administration
When President Biden assumed office in January, he dramatically shifted the stance of the executive branch with respect to the climate problem, appropriately treating it as a systemic condition that must be integrated into all relevant federal policies. On January 27, a week after assuming office, the President issued an overarching executive order to organize and deploy all federal agencies in a government-wide effort to reduce climate pollution in every sector of the economy. He also established a new White House Office of Domestic Climate Policy, headed by former EPA chief Gina McCarthy as National Climate Advisor.
Ms. McCarthy leads the National Climate Task Force, which meets regularly to implement the President’s “whole of government” approach to address climate change, while also achieving environmental justice goals and creating union-backed jobs. Among the most prominent Task Force initiatives spelled out in the executive order are: leveraging the federal government’s buying power to promote carbon free solutions in electric power generation, transportation and manufacturing, engaging leaders in agriculture and forestry to promote the goal of protecting 30% of the land and ocean by 2030, creating a new Civilian Climate Corps that would generate jobs in land and water protection and natural carbon sequestration, setting up a new interagency working group on Coal and Power Plant Communities and Economic Revitalization, which will direct federal agencies to lend assistance to fossil fuel communities to enable their transition to a carbon-free energy economy, and establishing a Justice40 Initiative to examine how Federal investments can be structured to allow 40% of the benefits to flow to disadvantaged communities. In May, the Administration issued another executive order setting out a climate-related financial risk strategy for the federal government. Many of these initiatives will require significant funding by the mechanisms described below.
No less encouraging is the administration’s explicit commitment to restoring rigorous science-based policymaking and scientific integrity, emphases badly needed after the disastrous Trump era. On his first day in office, President Biden directed all agencies to review the actions of the past four years, calling explicitly for tougher regulations on methane abatement, stricter vehicle fuel economy standards (recently the subject of another executive order), more stringent appliance and building energy efficiency rules, and specific attention to curtailing hazardous air pollutants from coal and oil-fired electric power plants. In the same executive order, the President also temporarily paused oil and gas leasing in the Arctic National Wildlife Refuge and withdrew Alaskan offshore waters from the leasing program, established an interagency working group to generate a revised social cost of carbon to monetize the value of emissions reductions and guide policymaking, and revoked a key permit for the Keystone oil pipeline. The company developing that pipeline, TC Energy Corporation, has since terminated the project – delivering a huge win to the environmental advocates who have been opposing it for years.
Energy development on federal lands and waters is another area where the administration has begun to leave its mark, and is particularly significant given that nearly a quarter of all US CO2 emissions in 2005-2014 came from burning fossil fuels extracted from federal lands, especially coal. The early Executive Order on tackling the climate crisis included a moratorium on new oil and gas leases, initiated a review of practices for existing leases (a later order was dedicated to a review of coal leasing) and contained a directive to all agencies to eliminate fossil fuel subsidies within the limits of existing law. Unfortunately, the moratorium on new oil and gas leasing was overturned by a federal judge in response to an industry lawsuit, and the Biden administration has indicated that it will resume auctions while it appeals. The capitulation was criticized by environmental groups, but we should note that any resumption of new leasing is likely to be narrow while the review of policy for existing leases continues. And the administration’s early executive order also contained a directive to the Secretary of the Interior to increase production of renewable energy on federal lands and offshore waters (for a review of the recent fossil fuel leasing developments, see here.)
President Biden has also taken steps to restore American leadership on the international stage. After submitting articles to rejoin the Paris Agreement, the President convened a Leaders Summit on Climate in April, at which the US and other countries announced new targets to keep warming below 1.5°C. The US target is a 50-52% reduction in economywide net greenhouse gas emissions by 2030, as compared to peak emissions in 2005 – which would put us squarely on the path to net-zero emissions by 2050. An interim goal is to reach 100% carbon-free electric power generation by 2035. These pledges frame our national determined contribution (NDC) as required under the Paris Agreement. The President then followed up a few weeks later with an executive order creating a Climate Change Support Office within the State Department to further advance multilateral climate initiatives at global scale. And by appointing former Secretary of State John Kerry as the Cabinet-level Special Presidential Envoy for Climate, President Biden took a big step towards reestablishing American credibility with the international community.
Presidential leadership in addressing the climate crisis clearly makes a difference, but only goes so far. The authority for all executive orders comes from Article II of the Constitution, which states that the President shall “take care” that the laws be faithfully executed. But this power obviously cannot be exercised if Congress does not pass a comprehensive climate law to begin with. The limits of executive power are also evident in President Biden’s attempts to reduce fossil fuel extraction, because in the US most coal, oil and gas is mined from state or private land. Electric vehicles offer another example. The recent Executive Order on vehicle fuel economy stated a goal that 50% of new vehicles sold in 2030 would run on carbon-free fuel, an initiative enthusiastically supported by the auto industry. But this cannot happen without better consumer incentives and buildout of expensive EV charging infrastructure – which only Congress, with the power of the purse, can enact.
Congress – the infrastructure bill
The 117th Congress (2021-2022) has adopted a two-track path for enacting climate legislation. The first path is the so-called infrastructure bill (H.R. 3684; Infrastructure Investment and Jobs Act; see here for a detailed summary), a nearly $1 trillion measure that includes about $550 billion in new spending. This bill passed the House on July 1, and after significant changes were made, it passed the Senate on August 10 with bipartisan support. The bill now goes back to the House for another vote, since both chambers must approve the identical bill before it can receive the President’s signature (see here for the bill’s timeline so far).
The Infrastructure Investment and Jobs Act incorporates only part of the Biden administration’s vision to address climate change, which is fully expressed in the American Jobs Plan. It is worth noting that this comprehensive plan is but one aspect of the President’s Build Back Better initiative, which also includes the American Rescue Plan (passed in March of 2021 with the American Rescue Plan Act; see above) and the American Families Plan, which includes universal pre-K and community college education, child care and medical leave support, and tax credits for low and middle income families. As is typical for new administrations, by offering these detailed plans President Biden sends a signal to Congress outlining the nature and scope of the new legislation he supports. It then falls to the House and Senate to agree on the details and to assemble bills that can pass both chambers in identical form.
The Infrastructure Investment and Jobs Act generously funds traditional infrastructure (highways, rail, airports, ports), provides for a large expansion of broadband, and dedicates large allocations to water and wastewater infrastructure, including environmental remediation. But it also makes significant contributions to drive the carbon-free energy transition. Among the most important elements are $6 billion for a new program to reduce greenhouse gases from transportation, $7.5 billion to begin building a national EV charging infrastructure, $6 billion for cleaner school buses, and $65 billion for hardening and expanding the electricity grid, including physical and cybersecurity. Significant new funding is also included to begin building a domestic materials chain for EV and solar batteries, to a credit program for preventing electricity-generating nuclear reactors from shutting down early, and to fund demonstration projects that advance low-carbon hydrogen production (“blue” hydrogen), build electrolyzers for hydrogen production from renewables (“green” hydrogen), promote advanced carbon capture and sequestration methods, including direct air capture of carbon dioxide, and construct a CO2 pipeline transport network. The intention of much of this funding is to catalyze private investment in nascent technologies likely to be crucial for reaching the net-zero energy economy and (potentially) for large-scale atmospheric carbon drawdown (for analysis of the energy provisions of the bill, see here).
There are, however, at least four crucial ways in which the infrastructure bill falls well short of what is needed to address the climate crisis. First, it does not include provisions to set up a national climate bank, a dedicated financial institution to specifically mobilize capital for a green economy. Next, the funding levels provided for building out EV and electricity grid infrastructure do not match the urgency of the crisis, as projected by the road maps for reaching net zero emissions by groups such as Princeton Net Zero America. Third, the legislation does little to revise the tax code to promote clean energy technology and eliminate subsidies for fossil fuels. This is crucial, for example, in providing tax-based consumer incentives for purchase of EVs. Finally, and most importantly, the infrastructure bill lacks any mandate for the US to achieve quantitative greenhouse gas emissions reductions, either economy-wide or even for particular economic sectors.
These missing elements are included in other bills that have been introduced this year in the House or Senate, and Democrats plan to include all of them in the budget legislation to be considered this Fall. So why bother with a separate infrastructure bill? The answer, of course, is politics. Both President Biden and a fair number of moderate congressional Democrats genuinely believe in taking a bipartisan approach where possible, and the President has clearly also styled himself – in sharp contrast to his predecessor – as a leader who can accomplish important objectives that benefit all Americans. In this respect, an infrastructure bill is particularly important because it was an ostensible goal of the Trump administration, though one that was never achieved and that indeed became a symbol of its incompetence and disingenuousness.
Passage of the infrastructure bill with joint Democratic and Republican support in both chambers would indeed lay down a marker for the possibility of bipartisan governance. Senate Republicans might have retreated into pure opposition mode, but nearly 40% of their caucus, including the minority leader, saw the value of the legislation and were willing to allow the President to claim the mantle of bipartisanship. For their part, progressive Democrats have often opposed initiatives in carbon capture, nuclear power, and hydrogen development, at least in part because of perceived benefits to typically Republican constituencies. Yet they are on board now for a bill that advances all of those technologies. The bill’s passage, then, may help restore some hope for a recovery of civility in Washington and, at least in that sense, should be celebrated by all Americans.
Congress – budget reconciliation
The modest climate provisions in the infrastructure bill, however, are as far as Republicans will go. The heavy lifting remains and is left to legislation that will set out the federal budget for 2022. Democrats have advanced an extraordinarily ambitious $3.5 trillion blueprint that would enact the large portion of President Biden’s Build Back Better initiative that is not included in either the American Rescue Plan Act (enacted in March, 2021) or the infrastructure bill. If they can limit defections to no more than three members, procedural rules in the House will enable the Democratic majority to pass this budget bill with no Republican votes. The Senate, however, operates with a filibuster rule that requires 60 votes to advance legislation to the floor, enabling the Republican minority to block consideration of the bill. However, an exception to the filibuster can come into play for budget legislation, allowing it to pass with a bare majority. The process to execute on this is known as budget reconciliation. It faces two major challenges: finding near-unanimous consensus within the fractious Democratic coalition and negotiating the byzantine rules of budget reconciliation to enact as much of that consensus as possible.
The budget reconciliation process starts with the Senate and House Budget committees, which provide dollar allocations and high-level, general instructions to the other committees (13 in the House; 12 in the Senate) that will draft the portions of the bill under their respective jurisdictions. For example, the Senate Committee on Energy and Natural Resources has been instructed to spend $198 billion on the implementation of a clean electricity standard, funding for climate research, consumer rebates for electrifying homes, and a variety of other programs. Other involved Senate committees include Agriculture, Nutrition and Forestry ($135 billion), Environment and Public Works ($67 billion) and Health, Education, Labor and Pensions ($726 billion). The Senate Finance committee and the equivalent Ways and Means committee in the House are notable exceptions because their instructions are not only to spend money (for example, through new tax credits), but also to ensure that the overall package – extending over ten years – will reduce the federal deficit (over $3 trillion in 2020) by at least $1 billion. Of course, this means that these committees have the unenviable job of figuring out how the new spending should be paid for. To complete the process, all committees return their legislative drafts to the Budget committees, which then assemble “omnibus” bills for votes by the full House and Senate.
The budget reconciliation process presently under way has a big catch – it can only be used for legislation that implements changes to the federal budget. Provisions in the bill that don’t change spending or revenues, or where the changes in spending or revenues are merely incidental to the provision, can be struck from the bill. This is known as the Byrd rule, named for the late West Virginia Senator Robert Byrd, broadly acknowledged as the modern master of Senate protocol. For example, a provision for a $15 per hour federal minimum wage was originally included as part of the American Rescue Plan Act that passed under reconciliation in March of this year. But it was struck from the bill by order of the Senate parliamentarian, Elizabeth McDonough, because she judged that it failed the Byrd rule by having only an incidental budgetary impact.
The Senate and House appear to be using the process to incorporate as much of the President’s agenda as they can, but it is unlikely that all of it will pass muster – either under the Byrd rule or through other conventions that have been typically adhered to in past reconciliation actions, but whose status as gatekeepers is unclear. For example, in the past most of what is termed “discretionary” spending – such as funding of research and development or infrastructure projects – would have been left out, even though there is no clear rule against their inclusion. The decisions of the parliamentarian can also be overridden by the Senate majority, although there is no precedent for this. The process is certain to offer a good deal of drama as it unfolds through the Fall.
With these provisos in mind, let’s take a look at some of the most important climate provisions that will be included in drafts of the bills, as outlined in summaries provided by the Senate and House budget committees. Senate majority leader Charles Schumer has drawn on the results of many expert energy modeling teams to create a chart depicting how different parts of the reconciliation bill will contribute to reducing 2030 emissions by 45% below 2005 levels. Almost two thirds of the projected reductions will come from just two programs: a clean electricity standard and a package of clean energy and energy efficiency tax incentives. The remainder derive from a host of other programs including a federal green bank, a fee on methane pollution, and forestry and agriculture practices that help fix carbon on the land.
The clean electricity standard was first conceived as a way for the federal government to enact a nationwide renewable portfolio standard (RPS), a policy similar to those already in force in many states. However, state RPS laws are regulatory mandates that require utilities to generate increasing fractions of electricity from renewable or low carbon sources. Because this regulatory approach would be unlikely to pass muster under budget reconciliation, the relevant House and Senate committees are instead writing the law to simply provide payments to utilities who reach specified targets for making their electricity renewably. In fact, the law is being rebranded as the Clean Electricity Payment Program to reflect this shift. Monetary penalties would be incurred by utilities that do not meet targets. In this way, the program directly impacts the federal budget, as required under reconciliation rules.
The key elements of the Clean Electricity Payment Program (CEPP) will be the amounts of the payments and penalties to be levied, the scope of the program with respect to which classes of utilities are covered, the types of power sources that will qualify as “clean”, and the annualized targets for the amount of clean electricity that must be generated. Although many details are yet to be divulged, and will no doubt be subject to intensive negotiation, we do know that the national target is to be 80% clean electricity by 2030. Another constraint is the $198 billion budget allocation for the Senate Energy and Natural Resources committee, which is writing the details of the legislation. Given the other programs within the ambit of this committee, a reasonable upper limit of funding for the CEPP might be $150 billion. This effectively caps the size of the payment incentives.
If it passes, the CEPP will certainly do a great deal to move the US towards a carbon-free electricity grid. It is well to keep the enormous scope of the transition in mind, however. About 40% of US electricity is presently generated by carbon free sources (nuclear, wind, hydropower, solar and geothermal, in that order), and reaching the 80% target by 2030 will require them to grow 4% per year, as compared to their roughly 1% per year growth over the past decade. Going forward, while wind and solar power are nearly mature technologies, at least two other huge challenges remain: expansion and reconstruction of the national electricity transmission grid (including much more energy storage) and streamlining of administrative procedures for dedicating land to the new solar and wind farms. These issues are largely outside the control of utilities, about two-thirds of which do not generate their own electricity but instead purchase it from independent power producers.
Utilities won’t be able to meet their clean electricity targets under the law if new wind and solar deployments are slow or transmission is inadequate. Recognizing this, federal lawmakers included $28 billion for electricity grid improvements in the infrastructure bill, together with an additional $8 billion for supply chains for clean energy technology, which will help meet demand for large electricity storage batteries. More funding in these areas is envisaged in the budget reconciliation package, which may also add incentives for rooftop solar and increased authority for federal regulators to streamline permitting procedures. However, dedicating the large amounts of land needed for industrial scale solar and wind farms is a distinct challenge. It will require stakeholders at every level of government and in the private sector to reenvisage land use laws to meet the urgency of the moment. See here for a recent analysis of the land needs.
The other large missing piece of the puzzle is use of tax laws to stimulate the green economy. Senator Ron Wyden, chair of the Senate Finance committee, has put forward groundbreaking legislation to accomplish this. His bill, the Clean Energy for America Act (CEAA), passed out of the Finance committee with unanimous support among its 14 Democrats, and parts of it are very likely to be included in the reconciliation bill. The CEAA consolidates the dozens of existing green energy tax credits into just three categories: clean electricity, clean transportation, and energy-efficient buildings. It also eliminates all government subsidies for fossil fuels, estimated at about $20 billion per year. Importantly, the new tax credits would stay in force until substantial decarbonization of the economy is achieved. For example, tax credits for the power sector, such as the investment and production tax credits for solar and wind power, would not phase out until the electricity grid is 75% decarbonized. This is a vast improvement over the intermittent short-term credits that are the hallmark of the present system, and that have led to counterproductive boom and bust cycles for the solar and wind industries.
The CEAA also does a great deal to invigorate the market for electric vehicles (EVs). It provides a baseline $10,000 tax credit for electric vehicles (EVs) and adds another $2500 for EVs produced in the US by unionized labor. The credit is capped at $80,000, thus excluding luxury models, and is available regardless of the tax status of the consumer: under current law, which would be superseded, buyers who owe federal taxes in an amount less than the credit forfeit the difference. In addition, the manufacturer cap of 200,000 vehicles to qualify for credits is eliminated, ensuring that successful, innovative companies are not penalized while offering more consumer choice. These new incentives are absolutely essential for overcoming the reluctance of consumers to make the change away from gasoline-powered vehicles. As mentioned above, federal spending to greatly expand the charging infrastructure is also crucial for overcoming consumer reluctance, as it helps address the common concern about driving range.
The CEAA is unlikely to be enacted in its present form because it has to be reconciled with a House bill, the GREEN Act, which covers much of the same territory. The GREEN Act extends clean energy tax incentives for just five years, and applies current rules for deciding between production and investment tax credits, rather than leaving that choice to the company as does the CEAA. The CEAA also adopts a more technology-neutral approach, allowing any power generation method to qualify rather than conferring benefits only to traditional renewable industries, such as solar and wind. The GREEN Act also does less for EVs, increasing the cap to 600,000 vehicles per manufacturer rather than eliminating the cap altogether, and providing a smaller tax credit of $7500. The CEAA represents a more radical change, though some experts are concerned that the transition it calls for will be complex and hence that full adoption of the new rules will cost valuable time. It remains to be seen how the compromise between the respective House and Senate plans will play out.
The budget bill will also include funding for a federal green bank, or clean energy and sustainability accelerator. This part of the legislation will draw from no fewer than six separate bills already introduced in one or both chambers of Congress. All provide federal dollars to capitalize a working capital fund free from the limitations of fiscal year budgets, which will leverage private capital to accelerate the clean energy transition. The federal bank will likely fund some projects directly, while also lending to state and local green banks to foster businesses that can offer specific community investments. A portion of the funds may target highly impacted communities, including communities of color, low-income communities, and regions of the country where employment has depended on the fossil fuel industries.
The budget blueprints also include money for President Biden’s Civilian Climate Corps, which complements green banks by providing boots on the ground for local projects across the country. The program will emphasize land and water conservation, reforestation, and carbon sequestration through improved agriculture. Thus, it directly complements other efforts to address greenhouse gas emissions from industrialized land use. The House and Senate blueprints include direct funding in these and related areas, including programs to reduce the impacts of droughts and wildfires. A bipartisan bill recently passed in the Senate, the Growing Climate Solutions Act, may also find its way into the final bill. This legislation has won praise for its innovative, market-based approach to allowing farmers and ranchers access to funding for new climate-friendly practices that sequester carbon.
Funding budget reconciliation
$3.5 trillion is a lot of money. It doesn’t have to be paid for – just witness the $1.9 trillion American Rescue Plan passed in March under reconciliation rules, which did not include compensating measures to raise revenue. The 2017 tax cut passed under reconciliation at the beginning of the Trump administration is another example. But given the $5 trillion already spent for Covid relief, little appetite remains today for further red ink, and in any event, many of the pay-fors being considered are consistent with Democratic priorities. They include an increase in the corporate tax rate, reforms to the international tax system that would reduce offshore tax havens, higher capital gains taxes for wealthy individuals, an increase in the income tax rate for the highest bracket, and reforms to the estate tax. All of this comes within the purview of the Senate Finance and House Ways and Means committees.
Money is money, but since substantial outlays are being made to limit climate change, it seems more than appropriate for Congress to find ways of raising revenue that would do double duty to curtail greenhouse gas releases. The elimination of fossil fuel subsidies proposed in the CEAA is one example. Another provision sure to be included is a fee on methane emissions from oil and gas operations. A blueprint for this legislation is the Methane Emissions Reduction Act, which was introduced in the Senate by Rhode Island senator Sheldon Whitehouse in March. It would levy a $1800 fee per ton of methane emitted, relying on scientifically validated estimates of methane release rates from active oil and gas basins where drilling occurs. The fee should incentivize oil and gas firms to make good on their pledges to reduce methane emissions from their operations. The Clean Future Act, an expansive climate bill introduced in the House earlier this year, adds the idea of a technology commercialization program to improve leak detection and pipeline infrastructure. That bill also sets an ambitious target of reducing methane leaks 90% by 2030.
Yet another possibility is to impose a fee on the largest fossil fuel producers and refineries, which would be based on a percentage of their total greenhouse gas emissions. This idea is embodied in the Polluter Pays Climate Fund Act, introduced last month in the Senate by Maryland senator Chris Van Hollen. The fee would be imposed on 25-30 of the biggest emitters, raising about $500 billion over the next ten years. The bill is based on a time-honored principle of environmental law: those responsible for environmental damage should pay their fair share to clean it up.
Finally, the options for revenue under consideration by the Senate Finance committee include a carbon tax imposed on fossil fuel companies, starting at $15 per ton of emitted carbon dioxide and increasing over time. The tax would be paired with a carbon border adjustment to impose a tariff on carbon-intensive goods imported from other countries that have no carbon tax (or a lower tax). This policy mirrors that found in numerous examples of carbon tax legislation introduced in the 117th session of Congress, including the Energy Innovation and Carbon Dividend Act (in the House), the Save Our Future Act (in the Senate) and the America’s Clean Future Fund Act (in both the House and Senate). In each of these bills, some or all of the revenues are returned as dividends to American households, to offset the higher energy prices that would result when fossil fuel companies pass the tax on to consumers (during the transition period while fossil fuels are still in use). Whether a household dividend would be included in the budget bill, however, remains to be seen.
Carbon taxes have the support of an overwhelming number of economists from across the political spectrum, but they remain a hard sell in Congress because they are opposed by almost all Republicans as well as an influential minority of progressives. Nonetheless, their inclusion on the list of potential pay-fors indicates a real possibility that they may finally be enacted. Like the Clean Electricity Payment Program, a federal carbon tax would offer a quantitative emissions reduction schedule, but unlike that proposal, a carbon tax would not be limited to greening the electricity grid but would reach all sectors of the economy. This would offer a measure of certainty to the business community, communicating in no uncertain terms that the renewable energy transition is here to stay. The tax would raise many hundreds of billions of dollars per year, far more than envisioned in the Polluter Pays Act mentioned above, offering a revenue stream that would last for decades and could help finance the infrastructure needed for both climate mitigation and resilience to the worsening impacts that we must expect before things get better.