What Would It Take To Reach Biden's Carbon-Free Electric Power Goal by 2035?
Parsing technology trends, policy proposals, and clean tax cuts
President Joe Biden pledged on January 27 to conjure "a carbon pollution–free electricity sector" into existence "no later than 2035." What would that involve?
According to the Energy Information Administration (EIA), the U.S. electric power sector generated 4,127 terawatt-hours of electricity in 2019. Of that, 38.4 percent was produced from natural gas, 23.4 percent from coal, 19.6 percent from nuclear, 7.1 percent from wind, 7.0 percent from hydropower, 1.7 percent from solar power, and 2.8 percent from miscellaneous sources.
How many power generation units does it take to generate that electricity? The country has 668 coal-fired units (producing 20.8 percent of America's summer capacity), 6,020 gas-fired units (43.4 percent of summer capacity), 96 nuclear units (8.9 percent of summer capacity), 4,014 hydropower units (7.3 percent of summer capacity), and 1,345 wind power units (9.5 percent of summer capacity), and around 2,500 utility-scale solar power production systems. Small and utility-scale solar photovoltaic generation combined amounts to 5.6 percent of summer capacity.
Non-fossil-fuel energy amounts to 31.3 percent of America's available capacity; wind and solar account for 15.1 percent. But wind and solar produced only 8.8 percent of power actually generated, indicating that wind and solar generate power at roughly half their rated capacities. After all, the wind does not always blow and the sun doesn't always shine.
What do those figures imply about Biden's goal of achieving a carbon-free energy sector in a decade and a half? The current fleet of 96 nuclear power plants now generates 19.6 percent of U.S. electricity. This suggests that it would take about 290 new nuclear plants to replace the 62 percent of current power generated by burning coal and natural gas. That's about 20 new nuclear plants per year from now until 2035. Due to excessive regulation, the costs of the only two nuclear power plants currently under construction in the U.S. have now exceeded $25 billion. Based on that figure, building 290 such plants would cost a bit over $3.6 trillion.
What about using only renewable power instead? Since most hydropower sites are already occupied, let's look only at how much wind and solar capacity it would take to replace the power generated now using fossil fuels. Right now, 104 gigawatts of wind power and 36 gigawatts of solar power generation-rated capacity are installed. The EIA estimates that 12.2 and 15.4 gigawatts of additional wind and solar generation capacity, respectively, will be constructed in 2021. Generously assuming that the new plants would generate about half of their rated capacities, it would at that rate take about 50 years for these renewable sources to completely replace the U.S.'s current fleet of fossil fuel generation plants.
But let's assume that that the rate of renewable power installation can be more than tripled. How much would it cost to replace 791 gigawatts of fossil fuel generation capacity with the same amount of renewable power-rated generation capacity by 2035? American Electric Power plans to spend $2 billion building 1,500 megawatts of wind generation in Oklahoma over the next two years. Using that figure yields an estimated cost of just over $1 trillion, which more than doubles to at least $2 trillion when taking into account the actual capacity factors of intermittent renewable sources of energy.
Those rough calculations assume that the costs of renewable sources of energy remain steady for the next 15 years. That seems unlikely. The costs for both wind and solar power have fallen steeply and steadily over the past decade. Researchers at the International Renewable Energy Agency (IRENA) project that the costs for wind and solar power will further decline by 45 and 55 percent, respectively, by 2030.
Back in June, researchers at Berkeley's Center for Environmental Public Policy outlined a plan for getting the U.S. to 90 percent carbon-free electricity nationwide by 2035. Incorporating predicted future declines in the cost of wind and solar power into their analysis, they suggest that carbon-free electricity could be achieved by doubling U.S. solar and wind annual deployments through the 2020s, then tripling the historical maximum rates of installation in the 2030s. As evidence that such a rollout of energy infrastructure could be done, they point to natural gas power plant deployment rates over the past decade: U.S. natural gas summer generating capacity stood at 95 gigawatts in 2000, and has now quintupled to a level of 477 gigawatts.
The Berkeley researchers estimate that this plan would cost $1.7 trillion. They would keep some natural gas plants to back up periodic shortfalls in renewable power production, but they expect that we would burn less than 70 percent of the natural gas we currently use.
As the Berkeley researchers point out, getting to 90 percent renewable electricity would require some regulations as well as subsidies. But it's worth noting that they expect 55 percent of U.S. electricity to be generated by wind and solar power by 2035 even without their preferred policies, just from steeply falling costs.
Transitioning to low- and no-carbon dioxide energy sources is one way to address man-made climate change. Some market-oriented policy wonks have proposed that we finance that transition through tech- and pollutant-neutral "clean tax cuts" (CTCs). These would directly target technology constraints and accelerate capital flows to clean innovations by lowering marginal tax rates on investments that significantly reduce or eliminate pollution, such as carbon dioxide emissions. As Jigar Shah and Rod Richardson explained in Reason,
Tax-exempt private Clean Asset Bonds & Loans (CABLs) apply a supply-side tax cut directly to financial leverage. They would allow projects deploying qualifying pollution-reducing technologies to acquire tax-free debt. Tax-free interest would reduce the interest rate by about 30 percent.
CABLs also leverage up return on equity. They attract every kind of investor to both the tax-exempt debt and the taxable equity. Easier to use and more broadly attractive than tax equity, CABLs allow low cost innovators to expand faster. Far more cost effective than conventional subsidies, they give up tax revenue where it is low (the average return on debt in the U.S. is 4 percent) and harvest it where it is high (the average return on equity is 13.6 percent). If we assume those returns for a new business financed with 50 percent CABLs, 50 percent taxable equity, then the IRS would take in 340 percent more tax revenue on equity profits than they forgo on the tax-exempt debt.
Unlike conventional subsidies, CTCs (including CABLs) create incentives for competition, innovation, and popular participation. They give an advantage to competitive markets, increase the incentives to open markets, and let investment flow from all kinds of investors, large and small.
It should be technologically possible to greatly reduce the power sector's carbon emissions over the next 15 years. CTCs would be a much better—and cheaper—strategy than top-down mandates.