Assessing the Costs and Benefits of Clean Electricity Tax Credits
The U.S. House of Representatives passed the Build Back Better Act in November 2021. If enacted, the Act will make unprecedented investments in climate change mitigation, including substantial changes to clean electricity tax credits. Building on previous modeling conducted by Rhodium Group, we analyze the costs and benefits of tax provisions similar to those passed by the House. These provisions reduce cumulative power sector carbon dioxide (CO2) emissions by 13-22% from 2022-2050, compared to a scenario without these policies. This corresponds to a 64-73% reduction in 2031 electric power emissions below 2005 levels.
We find that the benefits of the clean electricity tax credits are roughly 3-4 times greater than the costs. Cumulatively, the benefits from the policies range from $335 billion to $1.8 trillion, while the costs range from $130 billion to $309 billion. On a per ton basis, the tax credits will reduce CO2 emissions at a cost of roughly $33-$50 per ton. These costs are less than estimates of the damages from the release of an additional ton of CO2, i.e. the social cost of carbon (SCC), and are substantially less expensive than most current policies to reduce CO2 emissions. These benefits only account for reductions in CO2 emissions and do not include any co-benefits from reductions in conventional air pollution emissions, which would likely further improve cost effectiveness.
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