By Heather Boushey, Noah Kaufman, and R. Daniel Bressler
President Biden has committed to achieving a net-zero economy by 2050 and reducing its net greenhouse gas emissions to 50-52 percent from 2005 levels by 2030, in line with international efforts to keep temperature increases well below 2 degrees Celsius to avoid the worst damages from climate change. While President Biden’s Bipartisan Infrastructure Deal and Build Back Better Agenda will create good-paying, union jobs and grow an equitable economy, many fear that reducing carbon emissions will place a burden on consumers through higher prices. After all, most greenhouse gas emissions come from energy production, and the costs of energy take up over 8 percent of the income of the typical American low-income household. More broadly, carbon emissions are embedded in the prices of many of the goods and services that a typical American consumer purchases, like food, housing, and transportation (Figure 1).
How does President Biden’s Build Back Better Agenda, which includes the Bipartisan Infrastructure Deal, Reconciliation Package, and new regulations, avoid burdens on consumers, given how embedded carbon is in the typical family’s consumption basket? Four major strategies help reduce emissions while keeping costs down for consumers: 1) help consumers get more with less money by increasing energy efficiency; 2) continue to reduce the costs of clean energy; 3) use the Federal government’s capacity to make investments in a cleaner economy; and 4) recognize the (very) high costs of inaction for consumers.
1) Help consumers get more with less money by increasing energy efficiency. As new ideas have come to market, many household goods and home improvements are now more energy efficient, which can save consumers a significant amount of money over the life of a household appliance. However, there are often large, upfront costs to making these investments, which is especially problematic for lower-income families who often lack the necessary liquidity. In other cases, consumers may not know of the potential savings over the life of a product, relative to the upfront cost. Well-targeted Federal funding, such as consumer rebates for home retrofits, can incentivize investments that provide net benefits to the country while enabling American families to consume less energy—reducing energy bills in the process. For example, the Department of Energy (DOE) estimates that 29 new or updated appliance standards put in place between 2009 and early 2015 are projected to cumulatively save nearly $480 billion for consumers between 2009 and 2030.
In addition to more efficient buildings, the President’s policies will improve the efficiency of the nation’s transportation system, making it more accessible and affordable for Americans. The recently proposed vehicle standards are projected to yield close to $140 billion in fuel savings for new vehicles sold by 2030, far outweighing any associated increase in sticker prices. On top of this, a combination of tax credits, producer incentives, and a national charging network will make fuel-efficient electric vehicles competitive with other new cars. Moreover, the infrastructure bill’s $39 billion investment in public transit and $66 billion investment in rail will provide Americans with affordable and convenient transportation options, thus encouraging more attractive options than driving for many trips.
2) Continue to reduce the costs of clean energy. Until recently, a rapid transition to clean electricity looked anything but cheap. But the costs of solar and onshore wind have plummeted in the past decade (Figure 2), in large part due to support from governments around the world. Today, carbon-free power sources, like solar and wind energy, are often the lowest-cost options.
The President is proposing historic investments in clean energy technologies, including those ready for rapid deployment immediately—such as solar and wind—as well as those at earlier stages of development, such as clean hydrogen and carbon capture and storage. Other countries around the world are making similar investments, vying for global leadership in clean energy industries.
As a consequence of this “race to the top” in climate investments, the clean alternatives in sectors across the economy may start looking more like the cheap alternatives in the power sector today, thus helping to ensure the country is poised for deep emissions cuts in the future.
3) Use the Federal government’s capacity to make investments in a cleaner economy.
In addition to Federal investments to spur innovation of emerging energy technologies, direct subsidies to energy producers can limit the costs of clean energy to consumers and accelerate the transition to a carbon-neutral economy. Subsidies can encourage producers to reduce emissions by bringing down their costs to produce clean energy, relative to other energy sources. From a consumer cost perspective, this is preferable to alternative ways to reduce emissions, such as regulations that prohibit or limit carbon-based energy, which tend to be passed on to consumers in the form of higher prices of carbon-intensive energy. In terms of who ultimately pays the cost of these subsidies, while American consumers fund the government, the progressive tax base means that government funding of emissions reductions can be a more equitable option than strategies that would more likely impose these costs on consumers.
In the power sector, the President’s proposals include a portfolio of incentives and investments—largely paid by the government—that can help ensure power sector emissions fall rapidly this decade, in line with the President’s goal of a carbon-pollution free power sector in 2035. A recent report from UC-Berkeley finds an 80 percent reduction in emissions by 2030 is achievable without increasing average electricity costs above today’s levels.
4) Recognize the (very) high costs of inaction for consumers. The President’s plan to keep costs low for consumers includes protecting them from the costs of inaction on climate change over the longer term. Our collective failure to address climate change will continue to add costs to family budgets in the decade to come, which can be reduced if we can bring down carbon emissions now.
The United States has incurred about $120 billion per year in damages from extreme weather and climate events over the past five years, and these costs are on course to accelerate as the planet continues to warm. For example, in the Western United States, the three most expensive wildfire years have occurred in the past four years. This year alone, nearly one-in-three Americans lived in a county hit by a weather disaster, more than any prior year. Americans pay for the costs of extreme weather directly by, for example, fixing flooded basements, and also indirectly, through higher insurance premiums and government spending on disaster relief.
On top of extreme weather events exacerbated by climate change, pollution from fossil fuels contributes to worsening health and well-being of Americans. Local air pollution produced by fossil fuel combustion causes premature death, exacerbates existing health conditions, leads to higher infant mortality, and reduces worker productivity, especially among lower-income groups and communities of color. Heat exposure alone is estimated to cause 12,000 premature deaths annually in the continental United States. Between 1991 and 2018, 35 percent of the heat-related deaths occurring in the United States are attributed to anthropogenic climate change. By the end of the century, deaths from heat exposure are expected to increase by 36,000 per year in a moderate emissions scenario and 97,000 per year in a high emissions scenario.
Because climate change will tend to hit low-income regions and individuals harder, it is expected to widen existing economic inequality. In a study estimating the economic damage of climate change in the United States, the poorest decile of counties is projected to suffer median losses that are 9.5 times larger than the richest decile of counties (when losses are measured as a percentage of baseline income).
In conclusion, investing in an economy that is more resilient in the face of increasingly severe floods, wildfires, hurricanes, and droughts will limit costs to Americans and help deliver on the President’s goal of building back better with a cleaner, fairer, and more productive economy.