Investing in Clean Electricity to Build Back Better

Wind turbines generate electricity near Palm Springs, California, with snow-covered Mt. San Jacinto in the background, February 2019.

Now that Congress has enacted immediate COVID-19 relief, it is time to lay the foundation for a sustained economic recovery through major federal investments in clean energy jobs, environmental justice, and a stable climate. No sector is better positioned for swift decarbonization than the power sector. The right package of tax incentives will drive a rapid transformation, putting the United States immediately onto the path toward carbon-free electricity.

A new report from the Rhodium Group explores how a significantly larger federal investment in the power sector can drive pollution reductions. The model looks at a combination of 10 years of tax incentives for new zero-emission electricity generation; regulation under existing statutory authorities; maintenance of existing zero-emission capacity; and accelerated retirement of certain rural co-op coal plants. The findings are impressive: The combination of investments and standards would cut power sector carbon dioxide emissions to as much as 76 percent below 2005 levels over the next decade.

This is a rapid pace of transformation. In just the next five years, this combination of investments and regulations together would cut pollution from today’s levels in the power sector by up to 43 percent for carbon dioxide; 62 percent for nitrogen oxides; and 84 percent for sulfur dioxide. The public health benefits of cutting this pollution cannot be overstated. These and other fossil fuel-related pollutants are known to cause respiratory diseases and premature death, particularly in low-income communities and communities of color on the frontlines of fossil fuel production.

It’s not just a matter of immediate reductions. These investments and regulations combined could also set the power sector—at least through 2028—on the rapid path to 100 percent clean electricity, bringing clean electricity generation from 41 percent in 2020 to as much as 69 percent in 2031. The potential for investment-driven clean energy growth is even more notable when compared to what would (or perhaps more accurately, what would not) happen otherwise. In the absence of new investments and standards, clean electricity generation’s share would not just stall but could fall to as little as 34 percent in 2031, according to Rhodium’s medium technology cost, business-as-usual projection.

To be sure, additional policies will be needed to take the power sector all the way to 100 percent clean electricity by 2035, as committed to by President Joe Biden in his Build Back Better plan. This should include a federal clean electricity standard, an approach that more than a dozen states have successfully demonstrated. But the right suite of federal investment can serve as the cornerstone for the transformation of the power sector. Investment will make a clean electricity standard and faithful implementation of the United States’ bedrock environmental laws more affordable and more beneficial than may otherwise be possible. Increasing the affordability of renewable electricity and investing in its deployment is a good strategy made even better when paired with standards-based policies.

At an estimated cost to the federal budget of roughly $200 billion over the next decade—only one-tenth of President Biden’s $2 trillion pledge for clean energy and infrastructure—the investments studied by the Rhodium Group could reduce annual carbon dioxide emissions by an estimated 626 million metric tons below baseline in a decade while also reducing average electricity bills.

Clean energy tax incentives have been around for many years —the production tax credit was first enacted in 1992 and the investment tax credit in 1978—but, over time, the credit values have varied and lapsed repeatedly. Since 1999 alone, the tax credits have been temporarily extended more than a dozen times, often retroactively—a legislative maneuver that does little to incentivize investment. Most recently, Congress again temporarily extended the tax credits as a part of the COVID-19 relief package in December 2020. Now is the time for Congress to set a stable, long-term incentive for investment in renewable energy at the scale required.

Decarbonizing the power sector is just one of the many ways that the United States must invest in the future, laying the foundation for sustained growth in good domestic jobs, building a more equitable economy, and securing a stable climate. The full investments-based agenda must include incentives and requirements for high-quality, unionized jobs here in the United States, especially for the power sector. It must deliver at least 40 percent of the benefits of the investments to environmental justice and other disadvantaged communities that need them, including the largely Black, brown, and Indigenous communities that have borne the burden of systemic racism and decades of disproportionate fossil fuel pollution; the communities whose economic livelihood, until recently, depended on fossil fuel production; and the communities most exposed to the harms of the changing climate.

The potential for power sector transformation in response to long-term, full-value incentives is enormous. Now is the time to invest in building the future we need.

Trevor Higgins is the senior director of Domestic Climate and Energy Policy at the Center for American Progress. Elise Gout is a research associate for Climate and Energy Policy at the Center.