The Biden administration has a
busy spring ahead of it. On the to-do list: finalizing key regulations covering tailpipe and power sector emissions before they become vulnerable to a new Congress that might have, let’s say, different priorities.
A new
working paper from the National Bureau of Economic Research shows (among other things) just how key those regulations are. The paper considers various future policy scenarios beginning in 2025, including one in which the Inflation Reduction Act is fully repealed and another in which the IRA stays and we get a carbon tax.
Here’s what those results look like in a chart:
The heavy black line in the middle represents the Biden administration’s current goal to reduce emissions 50% compared to 2005 levels by 2030. Although none of the scenarios quite achieves that goal, IRA-plus-carbon fee gets the closest. Notice, though, the gap in the timeline between the current policy scenario and one without those two sets of emissions rules. With them, the U.S. gets almost to a 50% cut by 2035. Without them, it takes another five years at least.
Not only that, each ton of carbon will be much more expensive to remove. With the proposed emissions standards, eliminating one metric ton of U.S. carbon emissions would cost $43 in 2023 dollars. Without them, it would cost $69.
Why do these scenarios start in 2025? Not only will the U.S. be welcoming a new Congress (and, potentially, a new President) next year, it’s also when large chunks of the 2017 Tax Cuts and Jobs Act expire. As one of the paper’s authors, University of California, Los Angeles law professor Kimberly Clausing, wrote in the Washington Post last year alongside Yale University law professor Natasha Sarin, “Since Republicans and Democrats both want to extend at least some of the expiring provisions, the tax code is likely to be reopened. That’s a forcing mechanism” — though, they add, “it also presents a serious risk.” While it might give policymakers leverage to push through desired reforms — like, say, a carbon tax — it could also “make things worse — for example, by simply extending these unaffordable tax cuts.”
A carbon price has long been economists’ favored solution to the problem of carbon emissions. But in the U.S. at least, it has also historically been a losing argument. Meanwhile, the Biden administration is expected to soften its final tailpipe emission rules, giving automakers more time to go electric in the face of (perceived, if not actual) slumping consumer demand.
As these two charts make clear, that, too, is a risk — a gamble that Biden will be able to win the support of the auto industry, hang onto the White House, and keep the U.S. on track to meet his climate goals.
Regulating emissions from cars and power, it turns out, is a major part of that. Without those standards — and especially without the IRA — the emissions picture gets grim.
