$2 Trillion Climate Plan

President Biden proposed a $2 trillion climate and energy plan during his campaign. He has now begun implementation of that plan, which would provide the funding over his first term in office. The funding would be primarily in the form of incentives to encourage investments in clean energy facilities and equipment and in energy efficiency improvements.

The discussion of this and similar plans rarely includes any mention of the level of private investment and cost required to achieve the plan goals and objectives, or the deadweight losses resulting from replacement of functional facilities and equipment before the ends of their useful lives.

One specific element of the Biden plan is the installation of 500,000 electric vehicle charging stations. This effort would involve acquisition or repurposing of land or building space for installation of the charging equipment, parking spaces for the recharging vehicles and acquisition of additional utility electric service capacity. Depending on the location of the facility, the electric distribution grid might require reinforcement to provide the incremental electric energy. This element of the program would also require some legislative or regulatory requirement for the purchase of large numbers of electric vehicles, probably with continued federal incentive funding to offset a portion of the incremental cost of the vehicles. However, the bulk of the funding for these activities would be private capital.

Another specific element of the program is the upgrading of 4 million buildings and weatherizing 2 million homes. These are both expensive efforts. The building upgrades would be predominantly to commercial and institutional buildings and would likely require substantial owner investment. The home weatherization effort would likely be targeted at low-income homeowners and would probably require a lower percentage of owner investment. Considering the Administration’s intent to terminate fossil fuel use in the US by 2050, the building upgrades would likely require replacement of natural gas, propane and oil heating systems and water heaters with electric equipment, which again might require acquisition of additional electric utility service capacity and perhaps distribution system upgrades as well.

Arguably the most ambitious element of the plan is accelerating the utility industry transition to renewable sources of generation, which the Administration intends to have completed by 2035. This effort would probably require continuation and expansion of federal incentive programs for wind and solar installations, combined with regulatory or legislative requirements for utilities to provide service to these new generating facilities as well as priority positioning in the supply order. As these new facilities come online, they will begin to render some existing utility generation facilities no longer “used and useful”, causing them to be removed from the utilities’ rate bases and abandoned, even though they are still functional.

The abandonment of functional fossil fuel generating stations would not only be a deadweight loss but would also begin rendering the fossil energy resources owned by the utilities and their suppliers as deadweight losses, since the powerplants they supplied were no longer operating.

President Biden’s nominee for Secretary of Commerce has already been quoted as saying that “we need funds for the climate agenda”, though the nature and magnitude of the specific taxes is yet to be determined.