A Combination of Proposed Reconciliation Policies Could Achieve US Climate Goals and Reduce Consumer Electricity Costs

A new issue brief from a team at Resources for the Future (RFF) finds that a combination of three policies being considered for the budget reconciliation process could reduce emissions, save money for electricity consumers, and meet the Biden administration’s “80x30” clean energy goal.

In their analysis, authors Nicholas Roy, Dallas Burtraw, and Kevin Rennert assess the electricity sector effects of several policy options: the Clean Energy for America Act (CEAA) tax credit extensions, the Clean Electricity Performance Program (CEPP) alongside the tax credits, and two versions of a $15/metric ton carbon fee that increases gradually over time (a “central” case fee and a less stringent “alternative” fee). Notably, the model focuses on the power sector, where the lowest hanging fruit for emissions reductions in the United States exist, and does not estimate the economy-wide effects of these policies. Economy-wide effects have been studied previously in another recent issue brief.

The authors find that a combination of all three policy options—tax credits, the CEPP, and a carbon fee—would lower electricity costs for consumers. Tax credits and the CEPP would cut retail electricity prices, and a carbon fee alone would increase them. The combination of the three policies yields a reduction in costs overall.

“Tax credits and the CEPP combined lead to a reduction in costs for consumers but fall short of the Biden administration’s clean electricity goals for 2030,” Burtraw said. "The addition of a carbon fee to these policies brings electricity costs back up slightly, but they remain well below baseline levels. And that policy combination yields an emissions outcome that surpasses the president’s goals.”

All the modeled policy options would reduce electricity sector emissions by billions of metric tons over the next two decades. But tax credits, the CEPP, and a carbon fee together would reduce emissions the most: 7.7 billion metric tons of reduced carbon dioxide by 2031 and 18.35 billion metric tons by 2040 compared to the baseline. Clean energy tax credits alone would reduce emissions by 9.42 billion metric tons by 2040.

Although all these policies would result in electricity sector emissions reductions, the only policy mixes that would result in an electricity grid that produces more than 80 percent clean generation by 2030 incorporates tax credits, the CEPP, and a carbon fee.

“Reaching 80 percent clean energy by 2030 is a meaningful goal. It is just a question of how the country will do it and who will face the costs,” Roy said. “If implemented correctly, the combination of policies being discussed are capable of reaching that goal, saving money for ratepayers, and mitigating shortfalls of any one individual policy.”

See the table below for more details on various policy mixes and their effects on clean electricity generation, emissions reductions, and consumer energy costs.