'Build Back Better' Back on The Cards

America has a higher greenhouse-gas intensity per person than any other OECD country save Australia. President Joe Biden promised to fix this mess by making climate change a priority and pledged to slash America’s greenhouse-gas emissions to roughly half of their levels in 2005 by 2030, reports The Economist. How's he getting on?

The Senate building in Washington at twilight

At the heart of this effort were two legislative proposals put to Congress last year: an infrastructure-focused bill and a social-policy and climate extravaganza dubbed Build Back Better, or just “BBB”. The former passed in November as the Infrastructure Investment and Jobs Act with bipartisan support. But though the latter passed the House of Representatives, it fell apart in the Senate in December when Senator Joe Manchin, a moderate Democrat who is Washington’s kingmaker, balked at the bill’s social-policy provisions and price tag. Mr Manchin declared as recently as February that BBB was “dead”.

Do not perform the last rites quite yet. Reports are bubbling out of Congress that Democrats are working on a climate-focused version, jettisoning the social provisions that offend Mr Manchin, for consideration before Memorial Day. If it really happens, would a climate-focused BBB salvage Mr Biden’s climate promises?

Not quite. The bill, as it stood when derailed last year, called for over $500bn in tax credits and subsidies for all manner of climate-friendly energy sources and technologies, ranging from wind and solar power to carbon sequestration and hydrogen. A recent analysis by the Zero Lab at Princeton University calculates that enacting BBB would help slash America’s emissions between 2022 and 2030 well beyond what existing policies would, putting America close to Mr Biden’s goal. In contrast, last November’s Infrastructure Investment and Jobs Act on its own would bring about only a puny reduction, leaving America well short of that goal.

So BBB is good. As in the old adage “Do not let the ideal be the enemy of the good.” The revised BBB would extend tax credits for a decade, ending the stop-go nature of previous support for renewables, and end restrictions tied to the tax code that made it hard for utilities to take advantage of them in the past. Even so, America can do better. That is because BBB is all carrots and no sticks: it hands out wheelbarrows of cash to all and sundry without any regulatory mandates to reduce absolute levels of greenhouse-gas emissions. In contrast, the Regional Greenhouse Gas Initiative now in place in the north-east and mid-Atlantic states has a mandatory cap-and-trade system that has led to a drop of over 35 percent in emissions since it was launched in 2009.

Best of all, though - argues The Economist - would be the introduction of an explicit price on carbon. This could be imposed economy-wide, and not just on the power sector, so that distortionary impacts were minimised. It could be structured as a carbon tax, starting modestly but rising in time to a level that bites - Canada’s carbon price is scheduled to rise to C$170 ($134) per tonne in 2030. And, to avoid allegations of big government and to prevent the tax from hurting the poor more than the rich, all revenues raised could be recycled as tax-refund cheques to households. That single bold act could do more to unleash America’s pent-up climate innovators than all of the blather spouted at UN conferences.

Still, it is probably wise for America’s climate campaigners not to let that 'old adage' be the enemy of Build Back Better.