The Fuse

The High-Stakes Budget Bill in Congress Could Turbo-Charge the Energy Transition

by Nick Cunningham | September 20, 2021

Democrats in the U.S. Congress are pushing one of the most sweeping economic and social spending packages in decades, with far-reaching consequences for the energy industry and for American efforts to tackle climate change.

There is a long way to go and plenty of infighting, which could yet water down or even sink the bill. But if they stay on the same page, the budget reconciliation package – dubbed by the White House as the Build Back Better Act – could dramatically transform the country.

Clean energy and climate bill

The proposed $3.5 trillion budget reconciliation bill, which will likely be narrowed down somewhat to ensure Democrats pass with thin margins, contains huge pots of money for new housing, healthcare, education, and many other aspects aimed at improving the quality of life for Americans. But the budget package is also a big-time energy and climate bill.

Essentially utilities would need to shift their generation portfolios towards clean energy by 4 percentage points per year.

One of the signature programs is called the $150 billion Clean Electricity Performance Program (CEPP), which is a complex financing architecture aimed at transforming the electricity system to achieve 80 percent clean energy by 2030, a very aggressive timeline. How CEPP achieves that is complicated, but essentially utilities would need to shift their generation portfolios towards clean energy by 4 percentage points per year.

Utilities can earn money if they grow clean energy over and above that annual target, or they pay a penalty if they come in underneath. Crucially, natural gas – a major source of both carbon and methane pollution – does not qualify unless the facility comes equipped with carbon capture and storage or some variation of that concept.

The CEPP could create an estimated 7.7 million jobs if it becomes law, according to a study from Analysis Group. After all, building millions of solar panels, wind turbines and batteries to overhaul the grid will require legions of workers. “These are new jobs; jobs that otherwise would not exist absent the CEPP,” one of the report’s authors, told CNN.

To help accelerate the deployment of renewable energy, several key tax credits will be extended through 2032 (rather than phasing down in the next couple of years). The production tax credit (PTC) subsidizes wind, solar and geothermal generation. The investment tax credit (ITC) covers 30 percent of the capital cost of building a project. And projects can also receive an extra 10 percent bonus ITC for building projects in low-income areas. Importantly, there are wage-standards and domestic content provisions included in the bill, which has brought along labor groups.

Another set of incentives are aimed at electric vehicles. For about a decade, the $7,500 EV tax credit applied, but it was capped at 200,000 vehicles per automaker. That has meant that would-be buyers of a Tesla or Chevy Bolt have not been able to tap into federal incentives for several years now.

The new EV credit would extend the $7,500 credit to all automakers, but would add an additional $4,500 of the car comes from a facility with a collective bargaining agreement – i.e. a union-made car.

The new bill lifts the cap, and expands the credit. The new credit would extend the $7,500 credit to all automakers, but would add an additional $4,500 of the car comes from a facility with a collective bargaining agreement – i.e. a union-made car. This is a big priority for labor groups, but non-unionized automakers are opposed. For now, the provision remains. Another $500 incentive is tacked on for cars assembled within the U.S. All told, a union-made car built in the U.S. could see a subsidy of as much as $12,500.

The subsidies have an income cap for purchasers at $400,000 for individuals or $800,000 for a married couple, and the subsidies max out for cars with a sale price of $55,000. Taken together, the limits are aimed at ensuring the subsidies do not unduly favor the rich or luxury cars.

The House Energy and Commerce Committee also passed a slew of other incentives, including $9 billion for home energy retrofits, $9 billion for home electrification (heating and cooking), $13.5 billion for EV infrastructure, $5 billion for electric trucks and buses, $17.5 billion for electrifying federal government fleets. There are plenty of other proposals; too many to name here.

Another important program incentivizes clean manufacturing so that many of the technologies, parts and equipment needed for the energy transition are built in the U.S. The so-called 48C program offers a 30 percent credit for the facilities that are building solar panels, batteries, wind turbines and the like. The program could create 140,000 jobs, according to some studies.

It is easy to see how pairing the 48C incentive with the CEPP turbo-charges the transition: One helps industry manufacture all the equipment needed, the other establishes the pathway to deploy clean energy. Supply push and demand pull. More clean energy, on a faster timeline, while creating even more employment.

Reconciliation negotiations

There is much more in the Build Back Better Act, a sprawling budget bill aimed at reducing inequality, improving health and education, and yes, speeding up the energy transition and heading off the worst of climate change.

But powerful industries are fighting back. The oil and gas industry is heavily lobbying to preserve the billions of dollars in subsides that it receives, while also attacking proposed fees on methane pollution. Many other industries are lobbying to protect their turf as well. That has several Democrats in both the House and Senate waffling on the core of the proposed bill.

In other words, the next steps are unclear and much could get watered down. But if the bulk of the concepts that are proposed remain intact, the U.S. could finally establish meaningful climate policy essentially for the first time. And with climate disasters growing worse by the day, there is little time to waste.

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