Nov 23, 2020 - Energy & Environment
Column / Harder Line

Subsidizing and innovating away climate change

Illustration of a hand depositing a one dollar bill into the Earth through a slot

Illustration: Aïda Amer/Axios

Washington lawmakers may throw billions of taxpayer dollars at clean energy next year, prompting a rush of ideas about how to do it and how effective it can be at tackling climate change.

Driving the news: With the federal government’s political power likely divided, the biggest policies are likely to come through an economic recovery package in the form of subsidies and other spending.

Where it stands: Extending wind and solar tax credits are at the top of the list for Democrats and renewable-energy lobbyists. But more measures are in the works that could also hitch a ride on a stimulus bill.

  • One is a bipartisan Senate bill introduced last week that would give subsidies to nuclear power plants that are in danger of closing down. It would also streamline the regulatory government reviews that advanced nuclear power plants must undergo.
  • Another is a proposal by the National Wildlife Federation that's intended to bring cleaner electricity to parts of the country currently powered by coal and natural gas.
  • The proposal would give varying levels of tax credits to utilities depending how high carbon emissions are in the state's electricity, according to Shannon Heyck-Williams, the group's climate and energy policy director. The higher the emissions, the bigger the subsidy offered to generate cleaner electricity.

Yes, but: A GOP Senate controlled by Sen. Mitch McConnell is unlikely to approve anything close to President-elect Joe Biden's campaign goal of $2 trillion in funding over four years for clean energy and climate policy. The economy of McConnell's home state of Kentucky depends heavily on coal.

  • "They'll have to trim that number down a little bit," said John Podesta, a longtime Democratic insider whose focus today is on climate change.

The big picture: Washington has a decades-long practice of approving carrots (rewards) over sticks (penalties) to affect energy policy.

  • In fact, the federal government has almost never passed a major “sticks” policy — like carbon taxes and mandates penalizing oil, natural gas and coal — despite decades of debate about such approaches. (A federal ethanol mandate is a notable exception.)

What they’re saying: This debate about carrots and sticks is a perennial one.

  • Republicans and conservatives (generally speaking) argue that innovation via federal spending is sufficient to position America to export technology to developing countries like India that are unlikely to impose any sort of stick policy.
  • Democrats, environmentalists, most scientists and economists (generally speaking) say it's also important for the government to send signals to the private sector — through a carbon tax, mandate or the like — to drive investments toward cleaner energy sources that have been historically more expensive.
  • For now, Washington’s divided control continues to favor the carrot-only approach, but with a boost of Democratic leadership in the White House.
“Under unified government, energy innovation would be broadly popular but might compete for attention with other progressive priorities. Under divided government, it's the first priority for climate action, the most politically feasible, and I happen to think the most important."
— Varun Sivaram, senior research scholar, Columbia University's Center on Global Energy Policy

Flashback: When then-President Barack Obama entered office in the middle of another recession, he poured $90 billion into clean energy. That was supposed to be a down payment propelling the legislation he hoped to pass later, which would have sent a market signal, but it failed.

  • Congress has actually increased innovation funding despite President Trump’s proposed budget cuts, but energy experts say the increases are not enough.
  • What’s more, the $90 billion from 2009 was mostly a one-off event. “What we really need is a long-term sustainable increase in innovation funding,” Sivaram said.
  • Put simply, Sivaram is saying we need more carrots for a longer time.

By the numbers: The federal government should almost triple federal investment into energy innovation to $25 billion by 2025, compared to less than $9 billion currently, according to a just-published book by Sivaram and others.

  • That $9 billion is less than a quarter of what the government invests in health innovation and less than a tenth of what it spends on defense.
  • Energy-related carbon emissions could be reduced 40% compared to 2005 levels by 2040 if the Energy Department’s R&D budget is doubled, according to the book.
  • But, but, but: That’s still 30% less than what would be needed to achieve Biden’s goal of a net carbon-zero economy by 2050. 

The bottom line: At some point, most experts agree, Washington will have to use sticks along with carrots to have a real impact on climate change.

Go deeper: Clean energy isn’t enough to tackle climate change

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