Build Back Better Act: Paving Way for Net-zero Emissions

To get an idea of how this might work, WRI conducted an economy-wide decarbonization modeling study with Energy + Environmental Economics, Inc. Skiptomaincontent Accessibility QuickLinks Clicktoseemore Mainnavigation Footermenu-secondary MegaMenu Whatcanwehelpyoufind? WaystoGive Joinus ContactanExpert ExploreWRIPerspectives Back AllTopicsRemovefilter ClimatefiltersitebyClimate CitiesfiltersitebyCities EnergyfiltersitebyEnergy FoodfiltersitebyFood ForestsfiltersitebyForests WaterfiltersitebyWater OceanfiltersitebyOcean BusinessfiltersitebyBusiness EconomicsfiltersitebyEconomics FinancefiltersitebyFinance EquityfiltersitebyEquity SearchWRI.org Notsurewheretofindsomething?Searchallofthesite'scontent. Whatcanwehelpyoufind? WaystoGive Joinus ContactanExpert ExploreWRIPerspectives AchievingNet-zeroEmissions:CantheBuildBackBetterActHelpGetThere? December15,2021 By RajatShrestha,DevashreeSaha,JohnFeldmannandJillianNeuberger CoverImageby:U.S.DepartmentofEnergy/Iberdrolarenewables TechnicalPerspective Topic U.S.Climate Region NorthAmerica Social Twitter LinkedIn Facebook Email Print Moreon Climatenet-zeroemissionsNationalClimateAction Moreon Climatenet-zeroemissionsNationalClimateAction ThelatestreportbytheIntergovernmentalPanelonClimateChangeconcludesthattheworldmustreducenetgreenhousegas(GHG)emissionstozerobymid-century tolimitglobaltemperatureriseto1.5degreesC(2.7degreesF)andavoidtheworstimpactsofclimatechange.TheBidenadministrationhascommittedtoreducingeconomy-wideGHGemissionsby50%-52%by2030relativeto2005levelsandtocutdomesticGHGemissionstonet-zerobymid-century. Achievingthesegoalswillrequirerapiddeploymentofexistingzero-andlow-carbontechnologies—suchasrenewableenergyandelectricvehicles,aswellasemergingsolutionsincludingcleanhydrogenandcarboncaptureandstorage(CCS)—andcoordinatedactionbyalllevelsofgovernment,theprivatesectorandcivilsociety. Togetanideaofhowthismightwork,WRIconductedaneconomy-widedecarbonizationmodelingstudywithEnergy+EnvironmentalEconomics,Inc.(E3)itoevaluatetheemissionsreductionpotentialoffederalclimatepoliciesandinvestmentsandidentifycombinationsofpoliciesrequiredinkeyeconomicsectorsintheUnitedStates.Thisanalysisrevealsthattaxcreditsforarangeoflow-carbontechnologies,combinedwithfederalinvestmentinclimate-smartinfrastructure,wouldsignificantlyimproveadoptionofthesetechnologiesandhelpcurbemissions. Butthesepoliciesalonewon’tgettheU.S.toitsnet-zerogoal.Thatwillalsorequiresector-specificperformancestandards,especiallyintheabsenceofeconomy-widecarbonpricing,aswellasnegativeemissionstechnologiesthatremoveandsequestercarbondioxidedirectlyfromtheatmosphereand increasedcarbonsequestrationbynaturalandworkinglands—includingforests,farmsandwetlands—tooffsetemissionsfromhardtomitigatesectors. TherecentlyenactedbipartisanInfrastructureInvestmentandJobsActinvestsinimprovedtransportation,energyandwaterinfrastructureandlaysthefoundationforU.S.climateaction.Butthereismoretodo.OuranalysisdemonstratesthattheHouse-passedBuildBackBetterAct—whichcontainsmorethan$500billiontocombatclimatechangeincludingtaxcreditsforvariouscleanenergyandlow-carbontechnologies—isessentialforCongresstoputthecountry’sclimategoalswithinreach.Whileouranalysisfocusesonfederalaction,recentworkfromtheAmericaIsAllIncoalitionshowshowstateandlocalgovernments,businesses,civilsocietyandotherclimateleaderscancomplementfederalactionandplayacriticalroleinacceleratingclimateprogress. 3ScenariostoCurbEmissions WRI’sanalysisdoesnotexplicitlyevaluatetheimpactofalltheclimateprovisionsincludedintheInfrastructureInvestmentandJobsActandtheBuildBackBetterAct.However,itdoesmodelseveraltypesofprovisionsincludedinbothpiecesoflegislation,includingtaxcreditsforlow-carbontechnologiesandfederalinvestmentincleaninfrastructure. Ouranalysiscomparestheprogresstowardanet-zerogoalofferedbydifferentpolicypackagesthatoverlapandbuildononeanother,whicharemodeledunderthreemitigationscenarios(seegraphicbelow).Wefocusontheroleplayedbytaxincentives,infrastructureinvestments,targetedspending andsector-specificperformancestandardsasbuildingblocksforasuccessfuldecarbonizationstrategy. Scenario1(S1)includestheextensionofcurrenttaxincentives,alongwithincreasesinspendingprogramsthattargetinfrastructuretohelpdriveearlyadoptionofcleanenergyandenergyefficienttechnology. Scenario2(S2)layersonadvancedtaxcreditsforlow-carbontechnologiessuchasheatpumpsandelectricvehicles(EVs)inthemedium-andheavy-dutyvehiclesegmenttodrivebroaderadoptionofvariouscleantechnologies.ThepoliciesinthisscenariomostcloselyresemblethoseincludedintheBuildBackBetterAct(seeTable1). Scenario3(S3)buildsonS2toaddstringentsector-specificperformancestandardsandaneconomy-widenet-zeroemissionscap,requiredtoachievenet-zeroemissionsby2050. ThesemitigationscenariosarecomparedtoaReferenceScenariothataccountsforexistingfederalpoliciesandstate-levelactionssuchasRenewablePortfolioStandardtargetsandzero-emissionvehicletargets. Seemore:BuildingBlocksforaLow-CarbonEconomy Table1:ComparisonofTaxCreditsAssumptionsinWRI’sMitigationScenario2andtheBuildBackBetterAct Sector:Energy TaxCredits WRIMitigationScenario2 TheHouse-PassedBuildBackBetterAct Cleanenergyproductiontaxcredit 2.3cents/kWhthroughendof2035. 2.5cents/kWhthroughendof2031forprojectsmeetingprevailingwageandapprenticeshiprequirements.*(Sections136101,136801) Cleanenergyinvestmenttaxcredit 30%ofcapitalinvestmentsthroughendof2035,loweringto10%throughendof2050(40%foremergingtechnologiesincludingadvancednuclearpower,CCSandflowbatteriesthroughendof2050). 30%throughendof2031forprojectsmeetingprevailingwageandapprenticeshiprequirements.*(Section136102,136802)   Solarandwindprojectscanreceivea10%or20%bonuscreditdependingontheircontributiontoenvironmentaljusticecommunities.(Section136803) Investmenttaxcreditfortransmission 30%oftransmissionanddistributiongridinvestmentsthroughendof2050. 30%throughendof2031forprojectsmeetingprevailingwageandapprenticeshiprequirements.(Section136105) Sector:Transportation TaxCredits WRIMitigationScenario2 TheHouse-PassedBuildBackBetterAct Consumerelectricvehicletaxcredit $10,000incentivesfromEVtaxcreditandretirementvoucherthroughendof2035,$5,000retirementvoucherbetween2036-2050. $4,000-$12,500forlight-dutyvehiclesbetween2022and2031.**(Section136401)   $2,000-$4,000forpreviouslyownedlight-dutyvehiclesacquiredbeforeendof2031.(Section136402) Medium-andheavy-dutyelectricvehicletaxcredit $7,250formedium-dutyvehiclesand$13,750forheavydutyvehiclesthroughendof2050. Taxcreditofupto15-30%ofthecostofavehicleortheincrementalcostofavehiclecomparedtoacomparablealternative,whicheverisless,throughendof2031.(Section136403) Medium-andheavy-dutyfuelcellelectricvehicletaxcredit $20,000formediumdutyvehiclesand$31,000-$40,000forheavydutyvehiclesthroughendof2050. Extendswithcreditlevelmodificationsexistingcreditsforfuelcellvehiclesandrefuelingpropertythroughendof2031.(Section136404andSection136405) Sector:Buildings TaxCredits WRIMitigationScenario2 TheHouse-PassedBuildBackBetterAct Residentialenergyefficiencyandelectrificationtaxcredits Extendsexistingtaxcreditthroughendof2030.   $5,000taxcreditforpurchaseofelectricheatpumpsthroughendof2050. Extendsexistingresidentialenergyefficiencytaxcreditthrough2033.Thecreditrateis30%throughendof2031,andthen26%in2032,and22%in2033.Addsqualifiedbatterystoragetechnologyaseligibleproperty.(Section136302)   Extendsexistingenergy-efficientnewhomecreditthroughendof2031,increasingcreditto$2,500-$5,000(from$1,000-$2,000).(Section136304) Non-businessenergypropertytaxcredit Extendsexistingtaxcreditthroughendof2030. Extendsexistingtaxcreditthroughendof2031,increasingtheratetoupto30%,withanannualper-taxpayerlimitof$1,200andaperitemlimitof$600.(Section136301) Commercialbuildingsenergyefficiencyandelectrificationtaxcredit Existingtaxcreditextendedthroughendof2030.   Taxcreditof$100/tonofcoolingcapacityinstalledthroughendof2050. Modifiesexistingtaxdeductionthroughendof2031,loweringefficiencyimprovementthresholdandofferingagreaterincentiveforprojectsmeetingprevailingwageandapprenticeshiprequirements.(Section136303) Sector:Industry TaxCredits WRIMitigationScenario2 TheHouse-PassedBuildBackBetterAct Carboncaptureandstoragetaxcredit $50/metrictonofcarbondioxidecaptured,throughendof2050. $60-$180/metrictonofcarbonoxidecapturedthrough2031forprojectsmeetingprevailingwageandapprenticeshiprequirements***.(Section136106) Source:BuildingBlocksforaLow-CarbonEconomy,11/03BuildBackBetterAct,AssociatedSection-by-Section,CongressionalResearchServiceReport Notes:Table1isnotmeanttobeanexhaustivelistofallprovisionsoutlinedintheBuildBackBetterAct(BBBA)andonlyprovidesaveryhigh-levelcomparisonofkeyoverlappingtaxcreditprovisionsbetweenS2andtheBBBA.BothS2taxcreditassumptionsandBBBAprovisionsarehigh-levelsummaries,andthetabledoesnotfullydescribekeyfeaturesoftaxcreditsintheBBBA(suchasrefundabilityortheoptionofdirectpayforeligibleentities.) *Cleanelectricitycreditswouldsunsetpriorto2031ifemissionsfromtheelectricpowersectordecline75%from2021levels. **Plug-inhybridEVswithabatterycapacityofatleast10kWhwouldreceive$4,000.EVswithabatterycapacityofatleast40kilowatthours(50kilowatthoursafter2026)thathaveagastankcapacityofnomorethan2.5gallonswouldreceive$7500.EVsassembledintheU.S.byworkersrepresentedbyaunionwouldreceiveanadditional$4500.EVsusingbatteriesthatmeetdomesticcontentrequirementswouldreceiveanadditional$500. ***Creditis$60pertonofcapturedCO2usedforenhancedoilrecoveryorotherqualifieduses.Creditis$85pertonforCO2capturedforgeologicstorage.Electricitygeneratingfacilitiesmustcaptureatleast75%oftheCO2theywouldotherwiseemittoqualify.DirectAirCaptureprojectsreceive$130pertonofCO2usedforenhancedoilrecoveryorotherqualifiedusesand$180pertonofCO2capturedforgeologicstorage. Pleaseseesourcesformorecompletedetails. TheImpactofFederalTaxCreditsandSpending Ouranalysisshowsthattaxincentivesandfederalspendingonclimate-smartinfrastructurecanplayimportantrolesindeployinglow-carbontechnologiesandreducingnetannualGHGemissionsrapidlyupto2030,by39%and43%(relativeto2005levels)inS1andS2,respectively—thoughneitherscenariohitsthe2030U.S.climatetarget(seegraphicbelow).InbothS1andS2,thepaceofemissionsreductionslowssignificantlybetween2040and2050,andtheavailabilityoftaxcreditsandfederalspendingisnotsufficienttohelpthecountryreachnet-zeroemissionsby2050. Seemore:BuildingBlocksforaLow-CarbonEconomy Cleanenergytaxcreditsemergeasanimportantnear-termpolicytooltodrivecleanenergydeployment,especiallyinthepowersector.Extensionoftheproductiontaxcredit(PTC)andinvestmenttaxcredit(ITC)through2035andtheexpansionoftaxcreditstosupporttransmissioninvestmentsandstoragetechnologiesresultsinsignificantgrowthinrenewableenergygeneration,enablingthepowersectortoachievean87%reductioninemissions(comparedto2005levels)by2030,underbothS1andS2.Thisresultisnoteworthygiventhepowersector’spivotalroleindecarbonizingtheU.S.economybymid-century. Inthetransportationandbuildingsectorstoo,thecontinuationandexpansionofEVtaxcreditsandtaxcreditsforbuildingelectrificationandenergyefficiencyimprovementssignificantlyincreasetheadoptionofEVsandheatpumps.Thecombinedimpactoftaxcreditsandinvestmentinclimate-smartinfrastructureinS2resultsin78%and62%emissionsreductionby2050inbuildingsandtransportation,respectively. Taxcredits,ontheotherhand,dolittletocurbindustrialsectoremissions,whichcontinuetoincreaseinbothS1andS2,highlightingthechallengesofdecarbonizingthesector.Section45QtaxcreditenablesreductionsinGHGemissionsfromlargeindustrialsourcescomparedtothebaseline;however,itisnotenoughtoaddressthissector’stotalemissions. Source:BuildingBlocksforaLow-CarbonEconomy ThePathTowardNet-Zero Layeringinsector-specificperformancestandards,suchasacleanelectricitystandard(CES)andstrictemissionsstandardsforthetransportationsector,inadditiontofederaltaxcreditsandclimateinvestmentsdriveemissionstonet-zeroby2050inS3.MeasuresincludingtheadoptionofaCES,zero-emissionsvehiclestandardandtighterfueleconomystandardsresultina50%economy-wideemissionsreductionby2030andanet-zeroeconomyby2050. Asrenewablesourceslikesolarandwindpowerbecometheprimarysourcesofelectricitygenerationandtheeconomybecomesincreasinglyelectrified,firmcleanenergysourceswillberequiredtomaintainsufficientsystemreliability.CESadoptionensuresthatrisingelectricitydemandduetowidespreadelectrificationinS3isservedbygenerationfromsourcessuchasnaturalgaswithCCS(18%oftotalgenerationin2050)andnuclear(10%oftotalgenerationin2050)aswellaswindandsolar.Underthispolicyscenario,thepowersectorachievesa97%reductioninemissions(relativeto2005levels)by2035and100%reductionby2050,withtheshareofrenewablesinelectricitygenerationreaching82%and72%by2035and2050respectively. Installingsolarpanelsontheroof,Colorado,USA.Renewablesourceslike solar andwind powercouldbecometheprimarysourcesofelectricitygeneration.Photoby DennisSchroeder Significantchangesareneededtodecarbonizetheindustrialsector.Aneconomy-wideemissionscapimplementedfrom2030to2050wouldenabletheelectrificationofexistingnaturalgasheatprocessesandindustrialenergyuse,whilehydrogenisrequiredtomeetenergydemandforheatingprocessesthatcannotbeelectrified.Inthisscenario,hydrogendemandreaches14%offinalenergydemandin2050,withindustryaccountingfor68%oftotalhydrogendemand.HydrogenproductioninS3in2050isdividedbetweengreenhydrogenproducedfromcurtailedrenewableenergy(63%oftotalhydrogenproduced),andhydrogenmadefromsustainablebioenergywithCCS(BECCS),whichaccountsfortheremaining37%. Inadditiontoperformancestandards,NETsareneededtotackleresidualemissionsfromharder-to-abatenonelectricsectorssuchasheavytransportandindustry.CCSinthenet-zeroscenarioisdrivenbyBECCShydrogenproductionandbyrequiringcementandironandsteelmanufacturerstoemployCCStocaptureprocessemissions. Thisanalysisalsoshowsthatreductionsinagriculturalemissionsthroughimprovedmanagementofentericfermentation,manure,soilandfertilizer,andincreasedcarbonsequestrationbynaturalandworkinglandsarerequiredforanet-zeroeconomy.Withoutsignificantactiononfugitiveemissionsintheoilandgassector,however,thisdoesnotresultinnetnegativenonenergyemissions.S3seesa73%reductioninfugitiveemissionsfromoilandgasactivities,whichtogetherwithagriculturalemissionsreductionandenhancednaturalcarbonsinks,leadstonetnegativenonenergyemissionsby2050. TheCostsofU.S.Decarbonization FullydecarbonizingtheU.S.economyiseconomicallyandtechnicallyfeasible.Whilethiswillrequiresubstantialinvestmentsforthedeploymentofcleantechnologiesandsupportinginfrastructure,itcanalsocutcoststhroughreducedenergybillsandavoidedexpendituresonfossilfuels.Resultsvaryunderdifferentfuelpriceassumptionsandsuggestthatachievingeconomy-wide,net-zeroemissionsunderreferenceoilandgaspricesonlycosts$40billionmorethantheReferenceScenario(RS)in2030,representing0.2%ofU.S.GDP,andactuallysaves$113billionby2050(or0.3%ofGDP)relativetotheRS(seegraphic).Thispotentialforlong-termcostsavingsdemonstratestheimportanceofdecarbonizingtheeconomywitheffectiveandefficientpolicies.Furthermore,federalpoliciesandinvestmentstosupportthetransitiontoanet-zeroeconomycanbeanengineforcleanenergyjobcreationandoffersubstantialhealth,socialandeconomicbenefitswhicharenotcapturedintheseresults. Seemore:BuildingBlocksforaLow-CarbonEconomy Note:ModeledcostswerecalculatedunderthreefossilfuelpriceassumptionsfromtheAnnualEnergyOutlook2020.Underalowoilpricetrajectory,netmodeledcostsinS3are$70billionhigherin2030(0.3%ofU.S.GDP)and$96billionhigherin2050(0.3%ofU.S.GDP),comparedtotheReferenceScenario(RS).Underahighoilpricetrajectory,S3resultsinnetsavingsof$70billionin2030(0.3%ofU.S.GDP)and$428billionin2050,relativetotheRS(1.2%ofU.S.GDP). EssentialNextStepsforCongress Ouranalysisrevealsthattaxcreditsforvariouslow-carbontechnologies,incombinationwithfederalspendingoninfrastructure,cansignificantlyreduceemissionsinthepower,transportationandbuildingsectors,andtherebyserveascriticalbuildingblocksforenablingtheUnitedStatestomeetit2030and2050climategoals.ThismakesitimperativethatCongressquicklypasstheBuildBackBetterAct. InadditiontoextendingthePTCandITCthrough2031,thebillmakessuchtaxcreditsrefundablefora10-yearperiodandallowscleanenergydeveloperstoselecteitheranITCorPTCdependingontheirneeds,providingthemmoreflexibilityandstability.Additionally,thebillestablishesanITCforbuildingouthigh-voltagetransmissionlines.SuchprovisionscanexpandandmodernizetheU.S.powergridtosupportthetransitiontoacleanenergyeconomy. ThebillalsooutlinesvariousotherprovisionswhichcansupportemissionsreductionsacrossdifferentsectorsoftheU.S.economy.Thebillprovidesapoint-of-saletaxcreditofupto$12,500forEVswhichcanmakeEVsmoreaffordabletoalargersectionoftheU.S.population.Inthebuildingssector,thebillalsoestablishesinvestmentsforenergyefficiencyimprovementsalongwithaconsumerrebateprogramforthepurchaseandinstallationofheatpumps. Furthermore,measuressuchastaxcreditsforcleanhydrogenproductionandincentivesfordomesticmanufacturingofcleanenergycomponentsandhard-to-abateindustrialsectorssuchascement,steel,andaluminumcannotonlysupportemissionsreductions,butalsomakeU.S.industryproducersandindustriesmorecompetitiveinalow-carbonfuture.Taxcreditsforcarboncapturefacilitiesandfundingforagriculture,forests,andthecountry’snaturalcarbonsinksareothervitalcomponentsofthebillasouranalysisindicatesNETsandenhancednaturalcarbonsinkshaveanimportantroletoplayinhelpingtheUnitedStatesreachnet-zeroby2050. Transitioningtoanet-zeroeconomyby2050willrequireasuiteoffederalpoliciesincludingtaxcreditsforlow-carbontechnologies,investmentsforbuildingoutcriticalinfrastructuretosupportalow-carboneconomy,andsector-specificperformancestandards,especiallyintheabsenceofaneconomy-widecarbonpricingmechanism.TheBuildBackBetterActoffersvitaltaxcreditsandinvestmentsthatcanmakecleanenergyandlow-carbontechnologiesmoreaffordableandaccessible.AlongwiththebipartisanInfrastructureInvestmentandJobsAct,passingtheBuildBackBetterActcanboosttheUnitedStates’abilitytoconfronttheclimatecrisisandenablethenationtotransitiontoacleanenergyeconomy. 1ModelingbyE3estimatedreductionsinGHGemissionsoverthenext10and30yearsunderdifferentpolicyandfederalspendingscenarios.TheevolutionofU.S.energydemandandsupplyandemissionsreductionsunderthesescenarioswereassessedusingE3’sPATHWAYSandRESOLVEmodels. 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