Getting Climate Policy Right in the Infrastructure Bills
The current infrastructure bills being crafted and debated in Washington, D.C. could not come at a more dramatic time. Across the United States we are seeing heat records shattered, supercharged wildfires, mass die-offs of sea creatures, and flooding in cities. Fittingly, these infrastructure packages would represent the largest US investments in combating climate change to date, investing trillions of public dollars and leveraging trillions more in private capital over the next decade.
But it isn’t just the size of these infrastructure packages—it is also what’s in them. As with all legislation, there will be a lot of horse-trading over the final details, and so it is important to be clear on the key components that must be preserved. While a lot of attention has moved to the new reconciliation package, the Bipartisan Infrastructure Framework (BIF) and other pieces of legislation contain important standards and investments that should not be overlooked. Chiefly, measures around interstate transmission, road repairs, and public transit could go a long way toward enabling the decarbonization of the US economy.
The proposed packages are a down payment on efforts to confront the climate crisis over this decisive decade.
Bills, Packages, and Policies
There have been ongoing debates over infrastructure packages since President Biden unveiled his $2.2 trillion American Jobs Plan (AJP) in March. An important moment came in June, when Biden publicly announced his support for the $1.2 trillion BIF after months of negotiations.
Biden and the Democratic Party plan to pursue the BIF in parallel with a reconciliation package, to fund some of the needs in AJP that the BIF doesn’t address. The BIF is a step in the right direction, and it contains some substantial policies, including regulations that cannot pass through the reconciliation process. While bipartisanship is not always easy, there are some core areas of agreement that have support from both parties.
Here’s what tops our list:
- Transmission: Transmission is identified as a key priority in the BIF and is critical for clean energy deployment. Recent studies show that interregional transmission would add reliability, reduce system-wide costs, and facilitate clean energy deployment. Specific policies to support interregional transmission build-out are articulated in a draft infrastructure bill in the Senate Committee on Energy and Natural Resources, which can serve as a basis for the final infrastructure bill. This includes key language directing the Federal Energy Regulatory Commission (FERC) to initiate a rulemaking that would require interregional transmission planning and establish a cost-allocation methodology that reflects the broad benefits to stakeholders of grid ties between regions.
- Fix it right: The BIF states a desire to “repair and rebuild our roads and bridges with a focus on climate change mitigation, resilience, equity, and safety for all users, including cyclists and pedestrians.” While it doesn’t specifically identify “fix it right” as a requirement, there is a real opportunity to develop this requirement for infrastructure funding. This would prioritize fixing our existing roads—and improving them to include bus rights-of-way, dedicated bike lanes, and sidewalks—before highway expansions. This would create more jobs, reduce congestion, minimize vehicle miles traveled, and increase safety. In addition, there is an opportunity to develop performance metrics for transportation funding, such improved access to transit and greenhouse gas emissions reductions.
- Public transit: The BIF proposes $44 billion for public transit, the largest federal investment in public transit in history. Investing in our public transit is crucial to ensure people have options other than driving personal vehicles. Even if all new light-duty vehicles purchased were electric by 2025, our analysis shows we still need to reduce total vehicle miles to align with the US climate goals as part of commitments under the Paris Agreement. This requires safe, reliable, and accessible public transit, along with dedicated bike lanes and sidewalks.
More to Come
While the BIF and related legislation contain critical policies, there are still pieces that are missing. Notably, the BIF does not focus on decarbonizing buildings, nor does it contain funding levels sufficient to meet the goals it outlines, such as the mass deployment of EV charging stations.
As such, the reconciliation bill will be critical, and this week we learned more about some of the ideas that may be included. The starting point includes approximately $3.5 trillion in new investments to cover a wide range of priorities identified in the AJP. While details are scarce, the outline of this cross-cutting package includes the building blocks to deploy clean solutions at scale and achieve Paris-aligned climate goals.
Here are the cornerstone policies we believe are critical for rapid climate action:
- Clean Energy Standard (CES): A national CES would drive down power sector emissions by establishing incentives and penalties for utilities. A flurry of recent analysis demonstrates the dramatic health, economic, and climate benefits of a well-designed standard. Recent RMI analysis shows that rapid near-term power sector decarbonization is essential to achieve emissions reduction targets over the next decade.
- Rebates and refundable tax credits to accelerate building electrification:To decarbonize buildings and make them more comfortable, healthy, and safe, we need to drastically increase retrofits and construct new buildings that support deep energy efficiency and beneficial electrification, particularly for low- and moderate-income households. This can be done using rebates and tax credits to spur the market. This suite of tax credits should be refundable, so project owners can receive the full value of the tax credit, whether or not they have the tax liability to offset it.
- Financing to accelerate fossil fuel replacement: RMI’s proposed new program at the DOE’s Loan Programs Office (LPO) would offer financing tools to accelerate the replacement of fossil fuel assets with zero-carbon alternatives. These tools can also mitigate transition risks and stimulate economic growth in host communities, especially ones that have borne disproportionate fossil burdens. The “Clean Transition Financing Program” would primarily finance the accelerated retirement of uneconomic fossil generation assets owned by regulated utilities. With an appropriation of $4 billion, the program could save ratepayers more than $10 billion annually.
- Direct pay for the Investment Tax Credit (ITC) and Production Tax Credit (PTC): Regulated investor-owned utilities (IOU), cooperatives, and public power agencies own more than half of total power capacity in the United States. Despite the low cost of wind and solar, these utilities have largely not transitioned away from fossil fuels. Part of the reason is utilities’ inability to take advantage of tax credits such as the ITC and PTC, due to the limited tax liability of utilities. In 2019, the combined tax liability of all IOUs in the United States was only enough to build 4 GW of new solar and storage per year, roughly equivalent to shutting down one or two coal plants. Direct pay would provide more effective incentives for wind and solar and accelerate decarbonization across the country.
- Tax normalization opt-out for the ITC, and PTC optionality: IOUs are subject to tax normalization, a legal rule that requires them to spread out the benefit of the ITC for customers over the life of the project. Other solar developers can pass the benefit to customers immediately, which means these entities can sell electricity from solar at lower costs than IOUs can. Many utilities have therefore resisted solar development. Allowing a PTC option for solar (in combination with direct pay) would resolve the tax normalization barrier for utility solar development. However, a tax normalization opt-out is necessary to accelerate utility transmission and storage development.
- Refundable, transferable, and offsetable electric vehicle tax credits: To incentivize EV purchases for individuals with limited tax liability, taxpayers should receive a refund in place of tax credits they cannot use. Additionally, a transferable credit will allow purchasers to shift the credit to a dealer/third party so consumers can take advantage of the credit at the point of sale instead of waiting until they file their taxes. Dealers should be able to offset the amount due to them under the EV tax credit by applying the credit to reduce their existing tax liability (e.g., employee income tax withholdings) and increase dealer liquidity. Under the Cash for Clunkers program, dealers waited months for large reimbursements, making the credit expensive and risky for them to take on. The proposed combination of incentives transforms the credit into a point-of-sale rebate and provides more protection against fraud.
- EV chargers: Both the AJP and BIF set a goal of 500,000 EV chargers, but not all chargers are made equal. To support the rapid electrification of the transportation sector, 300,000 of those chargers should be DC fast chargers, which are more expensive and require public investment. Further, chargers should not just go along highways, but should be strategically and equitably placed. There must be an emphasis on public charging, urban charging stations in low- and moderate-income communities, workplace charging, multi-family charging, and transportation hub charging. RMI’s EV Charging for All report used existing EV charger data in Los Angeles to show that there is a real need for equitable and thoughtful placement of EV chargers.
As we enter the final sprint of the infrastructure marathon, we are encouraged and heartened by the impact the infrastructure bills could have on mitigating climate change, creating jobs, and improving public health. This is the opportunity to go big and show that the United States is committed to combating climate change. We hope policymakers are prepared to meet the moment.