Dems seek to salvage climate goals with taxes, regs

Source: By Benjamin Storrow, Jean Chemnick, E&E News • Posted: Wednesday, October 20, 2021

Sens. Joe Manchin (D-W.Va.) and Lisa Murkowski (R-Alaska) on Capitol Hill yesterday. Francis Chung/E&E News

A grim truth hit Democrats yesterday: They have limited options for meeting President Biden’s climate goals.

The centerpiece of the president’s climate agenda — a $150 billion plan to pay utilities to add clean electricity — is all but dead thanks to staunch opposition from Sen. Joe Manchin.

The conservative West Virginia Democrat also quickly dispensed with talk of turning to a carbon tax as a replacement, telling reporters yesterday it was “not on the board at all.”

And so by the time a group of progressive lawmakers emerged from a meeting at the White House yesterday afternoon — an outline of a scaled-down reconciliation package in hand — it looked increasingly likely that Democratic policymakers would settle for the only two climate policies the country has ever known: tax credits and regulations.

Several analyses show that tax credits have the potential to deliver the largest emissions reduction the United States has ever seen. But those reductions likely would fall short of what deep decarbonization studies say is needed to put America on course for net-zero emissions in 2050 (Climatewire, July 12).

The Clean Electricity Performance Program, which would have paid utilities to sell growing amounts of zero carbon power, would have boosted clean electricity generation from roughly 40 percent today to 80 percent in 2030.

Yet there appears to be very little effort to resuscitate the proposal in the face of opposition from Manchin, said Rep. Sean Casten, an Illinois Democrat who has emerged as a prominent voice on energy issues in the House.

There’s a concern that if we go through and we pass something with very weak climate provisions, are we going to be under pressure to celebrate that as a victory, and pretend that what we know is true is not?” Casten said. I have not heard anybody who has articulated a confident view — maybe you have some political spin — but a confident view that we’re going to get anything else done that’s remotely close to the scale of what we lose if we take the CEPP out.”

Analysts said the United States has a narrow road to achieving the 50 percent reduction in greenhouse gas emissions that Biden has targeted by 2030. The combination of tax credits, regulatory reforms and state action could cut emissions 45 to 51 percent below 2005 levels by 2030, according to a report released this week by the Rhodium Group (Climatewire, Oct. 19) .

The analysis finds the greatest emissions reduction in the power sector, dropping 58 percent by 2030 compared with where greenhouse gas levels would be on their present trajectory. Those reductions would be driven by a combination of tax credits for renewables, transmission, carbon capture and energy storage coupled with pollution regulations on new and existing power plants.

But there are no guarantees that the United States would meet Biden’s climate target, said John Larsen, a Rhodium analyst.

“Everything has to go right, and there is a lot that could go wrong,” he said.

Still, tax credits have a strong track record of greening America’s economy.

The stimulus package passed under former President Obama provided roughly $90 billion in incentives for clean energy. That money helped finance a renewable boom in America, with the share of generation from sources like wind and solar rising from less than 5 percent of the country’s electricity mix in 2011 to more than 12 percent last year. U.S. power-sector emissions fell 37 percent between 2005 and 2020, according to EPA data.

Progressives who emerged from a meeting on the White House yesterday said the scaled-back reconciliation package would include about $300 billion in climate funding, but they did not provide details.

A September analysis by the Joint Committee on Taxation found that the reconciliation package contained some $235 billion in clean energy tax credits, on everything from renewables, energy storage and transmission to home retrofits and electric vehicles.

The package also contains an important tweak. Where developers have had to rely on tax equity to receive the credits in the past, they would not be able to recoup those payments directly.

That is a huge win for renewables, said Casten, who worked as a renewable developer before entering Congress. But the question of whether Republicans could water down the tax credits if they take power in the midterm elections acts as an impediment to greening the electricity sector.

I’m glad of what’s there, but given the rate at which we need the private sector to be deploying capital, tax policy alone will never be sufficient,” he said.

If tax credits have proved a useful tool for cutting emissions, regulations’ track record is more mixed. The last two administrations wrote strikingly different rules for existing power plants using the same provision of the Clean Air Act, Section 111.

And each ran into trouble in the courts. The Obama-era Clean Power Plan, which looked for emissions cuts throughout the electricity system, was stayed by the Supreme Court even before the Trump administration took office and initiated a rulemaking to repeal it. The high court has grown more conservative since that time.

The much weaker Affordable Clean Energy rule, meanwhile, was invalidated by the U.S. Court of Appeals for the District of Columbia Circuit for failing to do enough to curb emissions.

“We have reactionary Supreme Court, so it is not a good time to think about new ideas,” said Danny Cullenward, a lawyer and researcher who studies climate policy. But focusing on limiting traditional air pollutants could have the benefit of also cutting carbon emissions, he said.

“Those are not the tools you would choose if you had the option, but there are a lot of tools we could use if we want to go faster and push toward those goals,” Cullenward said.

If climate legislation sputters out on Capitol Hill, the Biden administration will turn to EPA to decarbonize the power sector using the Clean Air Act.

In fact, White House climate adviser Gina McCarthy and EPA Administrator Michael Regan have both made clear in recent weeks that the agency would promulgate emissions rules for utilities whether Congress acts or not.

Biden’s EPA is expected to promulgate a third Section 111(d) rule for existing power plants, but it, too, must meet this Goldilocks-and-the-porridge test of showing enough ambition for the more liberal D.C. Circuit and enough restraint for the Supreme Court.

Regan said during his Senate confirmation hearing that when it comes to power plant regulations, EPA has learned from the “success and failure that we’ve seen in past tries.”

EPA’s acting air chief, Joe Goffman, spent the Trump administration at Harvard University, thinking about ways to write ambitious rules with more limited readings of Clean Air Act authority. And his former colleagues from Obama’s EPA say he entered the Biden administration with a clear set of ideas for how to decarbonize the power sector while maximizing a rule’s chances of surviving the Supreme Court.

“There’s no way that Joe Goffman would not have been organizing groups to think through these issues and begin to prepare regulation,” said one past official. “I have my doubts that they have something that’s completely prepared, but I bet there are pretty good outlines.”

Most experts say Goffman and his team are likely looking at ways to achieve maximum emissions cuts inside the fence line at a power plant. Requirements for co-firing would be a likely candidate, as would heat-rate improvements augmented by emissions cuts — and pressure on coal-fired power plants — from other rules for things like mercury, smog and wastewater.

Jeff Holmstead, who headed the EPA air office during the George W. Bush administration, told E&E News recently that McCarthy and Goffman would have a healthy respect for the legal risks involved in regulating carbon under the Clean Air Act for stationary sources.

“EPA hasn’t even started the regulatory process yet because the Clean Air Act doesn’t give the agency a clear path forward,” he said.

“It’s certainly true that the Biden EPA will impose additional regulations on the power sector even if the CEPP is adopted, but they’ll be regulating conventional pollutants — not CO2,” he added. “If they are committed to regulating CO2 no matter what happens in Congress, why haven’t they done anything yet?”

Michael Wara, a research scholar at Stanford University, echoed that theme, saying the administration’s best bet may be to focus on strengthening regulations, like the Cross-State Air Pollution Rule, that have already been ruled on by the Supreme Court.

Those rules can change which power plants companies choose to run, prompting them to select cleaner options more often and slowly eroding the economics of dirtier facilities. And combined with tax credits for clean sources of power generation, those regulations could put the United States closer to Biden’s goal.

“There is no guarantee,” he said. “But there are no guarantees, anyway.”