Promise and peril of Biden’s climate policy

In 2010, at the signing ceremony of the Affordable Care Act, it could be heard Joe Biden, then vice president, tell the president Barack Obama that “this is something big”. Okay, that’s almost what she said. And she was right.

Now, as president, Biden has presided over three big deals.

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After several years of “It’s Infrastructure Week!” turned into a joke, passed a major infrastructure law.

He passed a law to promote US manufacturing of sophisticated semiconductors.

And most importantly, Congress passed the Inflation Reduction Act, which despite its name is primarily a weather law; we are finally taking serious steps to reduce greenhouse gas emissions.

Yet many observers, myself included, have questioned whether Biden’s climate policy is quite important.

The media often uses hyperbolic language to refer to any program that involves spending hundreds of billions of dollars, which is why Biden’s climate initiative, which the Congressional Budget Office estimates will cost about $400 billion in spending to the climate, is described as “massive”.

But that’s more than a decade’s worth of spending.

And the Budget Office projects that cumulative gross domestic product over the next decade will exceed $300 trillion.

So we’re talking about spending a little more than one tenth of 1% of GDP.

​ Could this be enough to really make a difference in dealing with an existential threat?

Well, there are two strong reasons to believe that Biden’s climate policy may be far more important than the numbers might suggest.

But there are also reasons to fear that the policy may fail, not because spending is inadequate, but because of a crucial limiting factor:

an inadequate electrical network.

The first reason to believe that Biden’s policy might matter is that it comes at a crucial technological moment.

There was a time, not too long ago, when it seemed like limiting greenhouse gas emissions required tough decisions:

that this would have to be achieved largely through conservation and increased energy efficiency, which in turn would require setting a substantial price on carbon, either through carbon taxes or through a cap-and-trade system in which issuers had to buy permits.

Indeed, there would still be arguments for a carbon tax, if it were politically feasible.

But huge advances in renewable energy and related technologies, especially batteries, make achieving a low-carbon economy now seem almost easy.

Today we can easily imagine a society where people drive electric vehicles and cook on induction cookers, using energy generated by solar panels and wind turbines, without feeling any sense of sacrifice.

The role of politics therefore consists in accelerating this transition, in pushing us towards a sustainable economy.

And that doesn’t have to involve large sums of public money, just enough to act as a sort of catalyst for change.

A second, somewhat related reason for thinking Biden’s climate policy matters is that it doesn’t actually mandate spending $400 billion.

What it primarily does is set the conditions under which consumers and businesses can receive tax credits for adopting green technologies.

That $400 billion is based on an estimate of how many people will actually benefit from those tax credits, and given the spectacular pace of technological progress, that estimate it may be low.

A Credit Suisse report suggests that the loans could “drive much higher levels of activity” than the Budget Office forecasts, and that in practice federal climate spending could be $800 billion or more.

And there may also be a multiplier effectSince private companies make complementary investments to directly subsidized ones, Credit Suisse suggests the true size of the climate plan could be more like $1.7 trillion.

So the Biden deal may be bigger than it appears.

Which is good, given the importance of the issue.

Now my concern.

The US finally has a serious climate strategy.

However, it depends not only on a rapid expansion of solar and wind energy, but also on the connection of these new energy sources to the electricity grid.

But the US power grid is undercapacity and generally a mess.

Part of the reason is that there really isn’t an American network:

Investments in electricity transmission are, as a Reuters report puts it, “controlled by a byzantine network of local, state and regional regulators who have strong political incentives to curb spending.”

And this regulatory system was not designed to handle the sudden influx of new energy sources; as a result, just getting permission to connect to the network can take years.

Here’s how I see it:

The future of clean energy suddenly seems eminently possible thanks to a technological miracle – the staggering drop in the cost of renewable energy – and a political miracle – the success of the Democrats, despite extremely narrow majorities in Congress, when they enact laws that seem even better on closer inspection.

But we may need a third bureaucratic miracle to fix the power grid and make all this work.