Don’t Let this Crisis Go to Waste

May 3, 2020 by Camilla Brandfield-Harvey

By Robert Patton, Managing Editor

The coronavirus pandemic provides a unique opportunity to address global climate change.

Despite the uncertainty, fear, and often tragedy that accompany moments of national crisis, history shows that they often provide a rare opportunity for the federal government to address long-term problems in ways that seemed inconceivable prior to the crisis. FDR’s New Deal would not have been possible without the Great Depression; nor the expansion of access to higher education through the G.I. Bill without World War II; nor the largest single investment in clean energy in U.S. history without the 2008 financial crisis.[1] The gravity of these situations and the disastrous consequences of inaction enabled our leaders to make massive investments that transformed the country for the better, often in ways that were not evident until long after they left office.

The global coronavirus pandemic—which has upended daily life, caused thousands of fatalities, and frozen our economy for the foreseeable future—provides a similar opportunity. State and local governments have rightfully responded with stay-at-home orders to stop the spread of the virus, and Congress wisely passed the largest stimulus bill in U.S. history to mitigate some of the economic fallout.[2] This focus on the immediate impacts of the virus makes sense, but as Congress contemplates additional relief in the coming weeks it should simultaneously address another impending global crisis: global climate change.

Although there is not an established link between COVID-19 (the disease that results from the virus) and climate change,[3] both threaten global stability, as well as our health,[4] livelihoods,[5] and economic well-being.[6] Similar to COVID-19, if policymakers do not heed the warnings of scientists and take preventative measures before the threat of climate change is more visible, we will not be able to prevent its most deadly and disruptive consequences.[7] The good news is that climate-friendly policies and investments lead to both economic and environmental benefits. Moreover, with daily fatalities numbering in the thousands[8] and millions of Americans filing for unemployment each week,[9] Americans are not only receptive to, but expect bold government action.[10] Congress should meet their expectations to effectively address this crisis and prevent an even greater one by including the following in any future relief package:

1. Stabilize and Expand the Renewable Energy Industry by Extending and Simplifying Clean Energy Tax Credits

Renewable energy is the fastest growing energy source in the country,[11] and the preservation and growth of the renewable energy industry, which employs over 500,000 Americans,[12] is necessary to both minimize the economic damage caused by COVID-19 and reduce greenhouse gas (GHG) emissions. Over the last twenty years, production of renewables has increased exponentially.[13] As of April 2019, renewable energy outpaced coal as a source of electricity generation for the first time,[14] and it’s expected to continue that growth moving forward.[15] However, the U.S. still needs to increase the growth rate of renewables by 50 percent to meet its emissions goals,[16] which COVID-19 has made significantly more difficult. Specifically, it has disrupted supply chains and thus delayed construction schedules—undermining the ability of developers to qualify for time-sensitive tax credits, which are critical to keeping costs down and ensuring renewables remain an attractive investment compared to fossil fuels.[17] Further, the uncertainty regarding the cost of renewables, coupled with the broader financial shock stemming from the virus, has led to many homeowners and businesses cancelling or postponing investments in onsite renewable generation—including rooftop solar and small wind turbines—further stifling efforts to transition away from fossil fuels.[18]

Congress should stabilize and ultimately expand the industry by extending, simplifying, and in many cases increasing the tax credits that made investments in renewables lucrative in the first place. First, the solar Investment Tax Credit (ITC) – which allows both residential and commercial owners of solar energy systems to deduct a percentage of the installation costs from their federal taxes[19] – and the wind Production Tax Credit (PTC) – which allows companies that generate electricity from wind to deduct an amount proportional to the number of kilowatt-hours they produce[20] – are decreasing each year and set to expire in 2022.[21] However, the disruption caused by COVID-19 and the need to not just maintain, but expand our renewable capacity make these tax credits more necessary than ever. Second, there are nearly 100 additional energy tax incentives that provide different, and often arbitrary, subsidies for different technologies over a variety of time frames that do not appear to be based on a long-term strategy to increase clean energy production.[22]

As a result, Congress should replace the current energy incentive structure with something similar to the proposed restructuring outlined in the “Clean Energy for America Act.”[23] Specifically, provide taxpayers with a simple choice between one technology-neutral ITC, or one technology-neutral PTC. These tax credits should remain in place until nationwide emissions goals are met and should be performance based, meaning deductions will increase as emissions decrease, with those who produce zero emissions receiving the maximum deduction—which is set at the same level as the original solar ITC and wind PTC. Put more simply: incentives will be based on how clean the energy is as opposed to the technology used to generate it, and will not expire until emissions have been sufficiently reduced nationwide. This will help provide the renewable energy industry with the certainty and cost controls it needs to survive COVID-19 and ramp up production in the years that follow.

2. Stimulate the Economy and Reduce Emissions by Rebuilding our Infrastructure

Similar to its responses following the Great Depression and 2008 financial crisis, the federal government can more effectively contain the economic fallout of COVID-19 and reduce GHG emissions by making significant investments in infrastructure improvements. Such investments are long overdue, as most of our roads, bridges, railways, electrical grids, and water systems were built decades ago;[24] and our failure to modernize them continues to restrict economic growth and in many cases threaten public health and safety. Economists generally agree that infrastructure spending grows the economy,[25] especially during a recession, with studies estimating that increasing U.S. infrastructure spending by one percent of GDP would add between 1.5–1.7 million jobs to the economy.[26] Fortunately, many of the most promising infrastructure investments will not only create jobs in the short term, but also make it easier to decarbonize the economy in the long term.

A good place to start is the $760 billion infrastructure blueprint proposed by Congressional Democrats in January.[27] Similar to the blueprint, any additional COVID-19 aid package should expedite the transition to cleaner transportation – which is responsible for about 28 percent of all GHG emissions in the U.S.[28] – by increasing the availability of alternative fuel options like electric vehicle chargers and investing over $180 billion dollars in high-speed rail, mass transit, and advanced vehicles, fuels, and battery technologies.[29] Additionally, it should include the proposed $34 billion in electric grid modernization to improve efficiency, reliability, and storage capacity of more renewable energy;[30] and adopt the EPA’s recommendation to invest $632 billion dollars in modernizing our drinking water, wastewater, and irrigation systems.[31] Further, it should include programs that make new and already existing buildings more energy efficient, such as the Weatherization Assistance Program, High Performance Green Buildings Program, and the Energy Efficiency and Block Grant Program, all of which boosted economic activity and reduced emissions as part of the Recovery Act following the 2008 financial crisis.[32] Finally, Congress should take a page from the New Deal/Green New Deal playbook and create something akin to the “Civilian Conservation Corps” that employs and mobilizes young Americans to lead conservation and climate mitigation projects across the country, such as reforestation, restoring freshwater ecosystems, and public outreach.

Of course, this is all easier said than done. For years presidents and congressional leaders of both parties have called for massive investments in infrastructure, only to be stifled by partisan gridlock. However, COVID-19 has created a new sense of urgency for Congress to do something, and investments in infrastructure that boost economic activity in key labor-intensive sectors while reducing GHG emissions, though long overdue, may finally be politically plausible as a result.

3. Increase the Federal Gas Tax.

It may seem counterintuitive to increase a consumption tax as part of an economic stimulus package, but now is the ideal time to increase the federal gas tax – which has not been increased for over two decades[33] – because of what COVID-19 has done to the price of oil. Demand for oil has plummeted to the point that the price of a barrel of American crude is negative, or “less than worthless,”[34] and gas prices across the country are at record lows as a result.[35] This, combined with the fact that Americans now drive significantly less,[36] means increasing the federal gas tax will have a minimal immediate impact on most people and thus reduce the odds of a significant political backlash. There may never be a good time to raise taxes on gasoline, but if there ever was one, it’s right now.

More importantly though, raising the federal gas tax is good policy. First, it will help spur job growth. Revenues from the federal gas tax go into the Highway Trust Fund, which the Federal Government uses to pay for improvements of highways, bridges, and mass transit—investments that, as discussed above, stimulate the economy. However, the federal gas tax is not indexed to inflation and has not changed since 1993, meaning it has fallen by more than 40 percent in real terms since then.[37] As a result, over the last ten years, revenues in the Highway Trust Fund have consistently been insufficient to cover annual expenditures on highway and transit programs,[38] expenditures which were too low to begin with. Therefore, even if an increased federal gas tax generates minimal additional revenue during this crisis, once people begin driving again and the demand for oil increases it will provide critical new funding for “shovel ready” projects that can put people back to work.

Second, increasing the federal gas tax will account for the environmental costs of driving, serve as a bridge to a broader tax on carbon, and reduce GHG emissions by encouraging consumers to drive less and/or purchase more fuel-efficient vehicles. Transportation accounts for the largest share of GHG emissions—the majority of which are the result of driving[39]—and increasing gas taxes has been shown to encourage consumers to drive less,[40] particularly those who drive less fuel-efficient vehicles.[41] This is especially important, because the number of drivers on the road is expected to increase exponentially over the next ten years[42] and the EPA recently weakened federal gas mileage standards.[43] Thus, by ensuring the price of a gallon of gasoline reflects its real cost, drivers will be encouraged to drive less, purchase more fuel-efficient vehicles, and thus expedite the transition to emissions-free transportation.

These policies are by no means exhaustive, and it’s easy to dismiss them as irrelevant to the actual crisis at hand. But if the federal government’s muddled response to COVID-19 has taught us anything, it’s that the failure to act and prepare for the inevitable has real, and often tragic, consequences. That’s been one of the most frustrating aspects of this crisis: that it was preventable—there was no element of surprise here—and that along with feelings of sadness and anxiety is the simple, yet somewhat difficult to describe feeling that we should just be better than this. Just like the coronavirus, the carbon in the atmosphere is invisible, and by the time we feel its most devastating effects it will be too late. We are fully aware of what those devastating effects are and what exactly needs to be done to prevent them. We now know firsthand what happens when we don’t act on such knowledge, and should use this opportunity to make sure we never make the same mistake again.

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[1] Press Release, The White House, FACT SHEET: The Recovery Act Made the Largest Single Investment in Clean Energy in History, Driving the Deployment of Clean Energy, Promoting Energy Efficiency, and Supporting Manufacturing (Feb. 25, 2016), https://perma.cc/94R7-8FC2.

[2] Jordan Fabian & Justin Sink, Trump Signs $2 Trillion Virus Bill, Largest Ever U.S. Stimulus, Bloomberg (Mar. 27, 2020), https://perma.cc/ETX6-KURA.

[3] Christiana Figueres & Tom Rivett-Carnac, Our Approach to Covid-19 Can Also Help Tackle Climate Change, NewScientist (Apr. 1, 2020), https://perma.cc/48ZT-5HX9.

[4] See Nick Watts et al., The 2019 Report of The Lancet Countdown on Health and Climate Change: Ensuring that the Health of a Child Born Today Is Not Defined by a Changing Climate, 394 The Lancet 1836, 1838-39 (2019), https://perma.cc/VC2A-XKHK.

[5] See id. at 1842–45.

[6] See id. at 1862–68.

[7] See Myles Allen et al., Intergovernmental Panel on Climate Change, Summary for Policymakers, in Global Warming of 1.5°C, at 4, 7–11 (Valérie Masson-Delmotte et al. eds., 2018), https://perma.cc/7ADG-Y9C9.

[8] Ed Pilkington & Joanna Walters, US Sees Highest One-Day Death Toll from Coronavirus, The Guardian (Apr. 8, 2020), https://perma.cc/Q5KX-PGMJ.

[9] See Jeffry Bartash, Jobless Claims Jump Another 4.4 Million — 26 Million Americans Have Lost Their Jobs to the Coronavirus, MarketWatch (Apr. 23, 2020, 6:21 PM), https://perma.cc/B5QF-YCNW.

[10] See Jake Lahut, Americans Are Fine with the Senate’s Coronavirus Stimulus Plan, but Most Want It To Go Much Further, Business Insider (Mar. 25, 2020, 12:22 PM), https://perma.cc/QUA2-8LPT.

[11] Deloitte, 2020 Renewable Energy Industry Outlook 2 (2019), https://perma.cc/7PK2-VXCG.

[12] Maheen Ahmad, COVID-19 Hinders Progress in U.S. Renewable Energy Job Growth, Am. Council on Renewable Energy (Apr. 23, 2020), https://perma.cc/DLF9-L8DJ.

[13] Deloitte, supra note 11.

[14] Id.

[15] Id. at 7.

[16] Am. Council on Renewable Energy, Advancing America’s Climate Leadership: Policy Options that Most Effectively Put Renewable Energy to Work 5 (2020), https://perma.cc/4G7F-V32N.

[17] See Ahmad, supra note 12.

[18] Id.

[19] Investment Tax Credit for Solar Power, Energysage, https://perma.cc/L6VS-FMHT (last updated Mar. 11, 2020).

[20] Production Tax Credit for Renewable Energy, Union of Concerned Scientists, https://perma.cc/AP8H-PQ2U (last updated Feb. 9, 2015).

[21] Am. Council on Renewable Energy, supra note 16, at 9.

[22] Staff of the S. Comm. on Fin., 116th Cong., Clean Energy for America Act: Section by Section Summary 1–2 (Comm. Print 2019), https://perma.cc/7B6D-UXHJ.

[23] Press Release, S. Comm. on Fin., Wyden, Colleagues Introduce Legislation to Overhaul Energy Tax Code, Combat Climate Change (May 17, 2019), https://perma.cc/TQ5L-M6X9.

[24] James McBride, The State of U.S. Infrastructure, Council on Foreign Relations, https://perma.cc/S4YK-JAUT (last updated Jan. 12, 2018).

[25] Id.

[26] See McKinsey Glob. Inst., Bridging Global Infrastructure Gaps 2 (2016), https://perma.cc/4UL8-JHEJ; Jeffrey Werling & Ronald Horst, Nat’l Ass’n of Mfrs., Catching Up: Greater Focus Needed to Achieve a More Competitive Infrastructure 9 (2014), https://perma.cc/22VG-8RF3.

[27] Chris Teale, House Dems Put Climate at Center of $760B Infrastructure Plan, UtilityDive (Jan. 31, 2020), https://perma.cc/LWL8-29UZ.

[28] U.S. Envtl. Prot. Agency, Greenhouse Gas Emissions: Sources of Greenhouse Gas Emissions, https://perma.cc/Q449-GMKA (last updated Apr. 11, 2020).

[29] The House Comm. on Transp. & Infrastructure, Moving America and the Environment Forward: Funding Our Roads, Transit, Rail, Aviation, Broadband, Wastewater and Drinking Water Infrastructure 5–6 (2020), https://perma.cc/GXD9-6U64.

[30] Id. at 15.

[31] James McBride, The Beleaguered U.S. Water System, Council on Foreign Relations (Jul. 18, 2017), https://perma.cc/6BVS-C6QP.

[32] Joseph E. Aldy, A Preliminary Assessment of the American Recovery and Reinvestment Act’s Clean Energy Package, 7 Rev. of Envtl. Econ. & Pol’y 136, 152–53 (2013), https://academic.oup.com/reep/article-abstract/7/1/136/1577855?redirectedFrom=fulltext.

[33] McBride, supra note 24.

[34] American Crude Oil Has Fallen to Less than Nothing, The Economist (Apr. 20, 2020), https://perma.cc/Z59D-JTAC.

[35] Benjamin Fearnow, U.S. Gas Prices Hit Record Lows as Crude Oil Futures Crash Below $0 for First Time in History, Newsweek (Apr. 20, 2020), https://perma.cc/26W7-LLQX.

[36] Ulrik Boesen, Gas Tax Revenue to Decline as Traffic Drops 38 Percent, Tax Foundation (Mar. 31, 2020), https://perma.cc/KWM4-4NSD.

[37] Editorial, States Are Doing It. So Why Hasn’t Congress Increased the Federal Gas Tax?, Wash. Post (July 6, 2019), https://perma.cc/G7QD-86VT.

[38] Staff of the Joint Comm. on Taxation, Long-Term Financing of The Highway Trust Fund: Scheduled for a Public Hearing Before the H. Comm. on Ways & Means on Jun. 17, 2015, 113th Cong. 9–11 (2015), https://www.jct.gov/publications.html?func=startdown&id=4790.

[39] See U.S. Envtl. Prot. Agency, supra note 28.

[40] Kenneth Gillingham & Anders Munk-Nielsen, A Tale of Two Tails: Commuting and the Fuel Price Response in Driving 33-35 (Nat’l Bureau of Econ. Research, Working Paper No. 22937, 2016), https://perma.cc/HYJ2-D9D5.

[41] Kenneth Gillingham et al., Heterogeneity in the Response to Gasoline Prices: Evidence from Pennsylvania and Implications for the Rebound Effect, 52 Energy Econ. S41, S48-49 (2015), https://perma.cc/5VER-3NFK.

[42] What’s At Stake: How Decreasing Driving Miles in Massachusetts Will Save Lives, Money, Injuries, and the Environment, Transp. for Mass.: Blog (Nov. 23, 2015), https://perma.cc/572P-CSXF.

[43] Juliet Eilperin & Brady Dennis, Trump Administration to Finalize Weaker Mileage Standards, Dealing a Blow to Obama-Era Climate Policy, Wash. Post (Mar. 30, 2020), https://perma.cc/KH43-2E2G.