The American Jobs Plan was announced by the White House earlier this year to much fanfare. It describes sweeping action, using bold words like “reimagine” and “rebuild.” And while the Jobs Plan is not specifically an energy plan, energy topics are featured prominently. If the Jobs Plan were to be implemented more or less as described, it would arguably be the most extensive clean energy action ever taken by the federal government.
The Jobs Plan is more of an aspirational statement than a true plan, but there is enough detail to make educated guesses about implementation details. The plan either directly calls for, or requires by implication or necessity, tax credits and other financial incentives for renewable energy and energy storage. The Biden administration also plans to exercise the vast consumer power of the federal government by electrifying the federal vehicle fleet.
These actions are helpful and important—but they are not revolutionary. With the exception of the fleet electrification, these actions are not even particularly imaginative or aggressive. Certainly not “reimagined.” The most radical thing about it is the sheer scale of the plan (and we will see how much of that scale survives Congress). In most regards, the Jobs Plan is consistent with past federal programs. More expansive and ambitious, but not qualitatively different.
Historically, federal clean energy programs consist mainly of tax credits and other financial incentives, as does the Jobs Plan. Financial incentives can be a powerful policy tool, but there are inherent limitations. They are most effective when the incentive pushes past an inflection price point. Providing a tax credit on solar energy projects, for instance, is not particularly effective in markets where solar energy is more expensive than the alternatives, even with the tax credit—nor is it particularly effective in markets where solar energy is already cheaper than the alternatives, even without the tax credit. Tax credits and other financial incentives are most impactful in markets where the tax credit is the difference-maker between cheaper and not cheaper. That’s when the full power of the financial incentive comes into play.
The Jobs Plan would have been more ambitious if it included a carbon tax or cap-and-trade structure, a national feed-in tariff for clean energy, a national electric vehicle mandate, or a national renewable portfolio standard. These are all things climate advocates have requested or suggested for many years, but that have gotten little traction at the national level.
It’s a different story at the state level. Most states now have a renewable portfolio standard, and several have renewable portfolio requirements in excess of 50%. California law requires that most new housing include solar energy, and many states have laws that protect the rights of homeowners to install solar if they choose. Building codes in several cities are moving toward electrification. Some states have implemented energy storage mandates, or created capacity markets that allow for monetizing energy storage services. States have provided for net metering, increasing the value of behind-the-meter distributed solar energy generation. There have been feed-in tariffs; there have been tradeable renewable energy credits.
I believe these laws and policies have been the principal drivers of renewable energy growth in the U.S.—state and local laws and policies, not federal tax credits or federal anything else. Federal tax credits have smoothed the path and accelerated investment, but make no mistake—the real drivers of the industry are all from the states.
This is specifically because of the states’ approach. The nature of policies enacted by states are qualitatively different from the federal policies. While there have certainly been tax credits and other financial incentives at the state level, the bulk of state policies have been mandatory in nature. From Minnesota in 1994 requiring that Northern States Power procure wind energy, to California’s 100% renewable portfolio standard by 2045, states have relied heavily on prescriptive and proscriptive measures instead of financial incentives. Though there are many political views about different types of incentives, there can be little doubt that mandates are more effective at bringing immediate change.
Look at the various tariffs imposed on imported solar modules in the past few years. While these tariffs had a significant negative effect on development in Texas and other states without strong clean energy mandates, the solar industry continued unabated in California and other states with a more aggressive approach. The financial disincentives were no match for direct mandates at the state level.
Where the federal policies supporting (or opposing) clean energy have amounted to a gentle nudging of the markets, the state policies have been a swift boot to the rear. Federal tax credits have enticed investors. State mandates have directly created predictable and financeable markets.
What does this mean? It means that the Jobs Plan won’t change anything. It is certainly welcome, and will further smooth and accelerate the transition to a clean energy future. But as long as the federal government insists on price-point temptation as its principal mechanism, it will be up to the states to actually get something done. ■
—Morten Lund is a partner at Stoel Rives LLP. He is the current chair of the Energy Storage Initiative, and former chair of the Solar Energy Initiative.