Democrats want $273 billion in tax credits to achieve Biden’s climate goals

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In recent weeks Democratic lawmakers have formalized just how much they want climate change to be at the center of the forthcoming multitrillion-dollar budget reconciliation package.

They have formally unveiled a proposal with measures that include taxes on some imported fuels, a new federal aid program for clean-energy developers, investments in electric vehicles, and more.

The key driver on the supply side – i.e., insuring there are enough solar panels and wind turbines in operation to allow an energy transition – are through tax credits, Energy Secretary Jennifer Granholm told Yahoo Finance.

"It is really the tax credits associated with rewarding the private sector,” she said, that will drive a build-out of the nation’s capacity. Experts say the credits could help turn the corner on the carbon economy, though budget watchers estimate they will cost $273 billion in the next decade.

The forthcoming credits could also touch many areas of the economy if Democrats are able to push through their ambitious package: $134 billion is set aside for renewable electricity and energy and $42 billion for electric vehicles, just to cite two examples.

The larger picture, Granholm said, is the Biden administration's “big, hairy, audacious” goal to have solar power fuel 40% of the nation’s electricity by 2035, as well as a carbon neutral planet by 2050.

Secretary of Energy Jennifer Granholm holds a press briefing in the Brady Briefing Room of the White House in Washington, DC on May 11, 2021. (Photo by Nicholas Kamm / AFP) (Photo by NICHOLAS KAMM/AFP via Getty Images)
Secretary of Energy Jennifer Granholm in the Brady Briefing Room of the White House earlier this year. (NICHOLAS KAMM/AFP via Getty Images) (NICHOLAS KAMM via Getty Images)

A recent report from the Department of Energy laid out a plan for 100% “decarbonization” of the electric grid by 2030, fueled by massive advances in industries like solar energy. A report this summer from the Rhodium group, an independent research group, said that a strategic implementation of new tax credits could be key in order to get the U.S. “closer to a 100% clean electric grid.”

An ‘upfront tax credit’

The estimated cost of $273 billion of the Democrats' tax credit plan is less than what President Biden proposed in his budget earlier this year, but would nevertheless be a significant investment in the green economy.

Granholm notes that the impact could be felt everywhere, even among new car buyers.

To address the still-prohibitive cost of electric vehicles compared with gas-fueled cars, "what's being discussed right now is the president's goal of an upfront tax credit where you can get it right at the dealer, so you can compare right there and have that cost lowered right away,” said Granholm.

Other tax credits would go toward spurring American business investment in the clean energy sector, which Granholm said is on its way to being a $23 trillion market in the years ahead. (According to the World Bank, the Paris Climate Accords opened up "nearly $23 trillion in opportunities for climate-smart investments in emerging markets between now and 2030.")

A Tesla Model 3 is seen in a showroom in Los Angeles, California U.S. January 12, 2018. REUTERS/Lucy Nicholson
A Tesla is seen in a showroom in Los Angeles (REUTERS/Lucy Nicholson) (Lucy Nicholson / reuters)

“We are up against other countries who are competing tooth and nail for this market,” she said. Referring to China, she added, “other countries may have state-owned enterprises that they are subsidizing to be able to do this,” while “we, on our end, may have tax credits” to help point private enterprises in the right direction.

'We'll see how it shakes out'

In Washington, budget bill negotiations continue this week with new fears the deal could fail entirely. On the climate provisions specifically, Sen. Joe Manchin (D., W.V.) will have a key role in shaping the final bill. Manchin is a crucial swing vote, chairs the Senate's Energy committee, and has close ties to the coal industry in his home state. (Manchin famously cut a campaign ad in 2010 in which he shot a hole through then-President Obama’s climate plan, but has since publicly acknowledged the human role in rising global temperatures and the need for some action.)

Still, Manchin and fellow moderate Sen. Kyrsten Sinema (D., Ariz.) appear to be pushing toward a smaller bill – in the $1 trillion or $2 trillion range – which would leave negotiators with a question of whether to scale back the legislation’s climate provisions.

Granholm, who has forged ties with Manchin and even traveled to West Virginia with him, remains hopeful the full agenda will eventually be enacted.

“We'll see how it shakes out in negotiations,” she said.

Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.

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