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This report contains a correction.

Elected officials often raise infrastructure as a rare area in which legislative progress may be possible in the current political environment. Democratic leaders in the U.S. House of Representatives and U.S. Senate have voiced their support for putting Americans to work by modernizing the nation’s crumbling infrastructure. President Donald Trump campaigned on a promise of passing a $1 trillion infrastructure package, but he has governed quite differently. Trump has repeatedly called for deep cuts to federal infrastructure programs—including a cut of $159 billion over 10 years for highways and transit—and encouraged state and local governments to privatize public assets.¹

Democratic leaders in Congress have been clear that they expect any infrastructure legislation to include measures that will help address climate change. In December 2018, then-House Minority Leader Nancy Pelosi (D-CA) pledged that “when Democrats take the gavel, we will rebuild America with clean energy, smart technology and resilient infrastructure.”² Senate Minority Leader Chuck Schumer (D-NY) published an op-ed vowing there would be “No deal on infrastructure without addressing climate change.”³ The two leaders reportedly reiterated those points in a meeting with President Trump in the spring of 2019.⁴

Climate change presents an urgent challenge to the United States and the world. From 2016 through 2018, extreme weather events such as wildfires, hurricanes, and floods cost the United States more than $450 billion.⁵ According to scientists, the effects of climate change have made many of these events more severe. Higher sea surface temperatures resulting from climate change contributed to the strength and historic rainfall of Hurricane Harvey, which devastated the greater Houston area in 2017, while hotter, drier summers have made wildfires such as the 2018 Camp Fire, which killed 85 people in California, bigger and more destructive.⁶ Addressing climate change and protecting communities from its effects will involve changing where and how infrastructure gets built—and what kind of infrastructure is supported by direct federal spending.

In January, a Center for American Progress report argued that any infrastructure bill should address climate change not just by strengthening public infrastructure’s resilience to climate impacts, but also by funding infrastructure projects that yield measurable, ambitious reductions in the greenhouse gas emissions that are responsible for driving those impacts.⁷ The report also argued that setting an emissions reduction target as part of an infrastructure bill would help achieve that goal. CAP has also consistently argued that federal infrastructure legislation should focus primarily on direct investment opportunities and not on tax credits or public-private partnership approaches. The overwhelming majority of infrastructure needs are not well suited to alternative procurement approaches for a number of reasons; many critical infrastructure needs, including in the environmental space, will not produce a reliable stream of revenue that can be used to repay project financing, for instance.

Focusing on direct spending approaches to reduce the greenhouse gas emissions that drive climate change would represent a significant shift in how Congress considers both infrastructure and climate legislation. Over the past several decades, when Congress has debated legislation related to mitigating the greenhouse gas emissions that drive climate change, that discussion has centered on various market mechanisms—such as carbon prices or cap-and-trade programs—that would drive down emissions by increasing the economic cost of carbon pollution. Policies to accelerate the adoption of clean and renewable energy solutions, from wind and solar tax credits to carbon capture and sequestration technology, have largely been adopted through changes to the tax code. Meanwhile, relatively little direct federal spending today is aimed explicitly at reducing greenhouse gas emissions, whether through infrastructure or other programs.

However, it is urgent that Congress pursue all avenues to reduce carbon pollution and address climate change, including through direct federal spending. Due to policy changes enacted by the Trump administration, the United States is not on pace to meet its targets for economywide emissions reductions. Absent a major course correction, U.S. emissions will likely fall 12 percent to 19 percent below 2005 levels by 2025—a far cry from the goal of 26 percent to 28 percent reductions set as part of the Paris climate agreement, according to a recent analysis from the Rhodium Group.⁸

The purpose of this report is to identify pathways to maximize the emissions reductions possible through direct federal investment in infrastructure. This report prioritizes infrastructure investments for which there are existing federal programs that can be expanded or revised; where the infrastructure is federally owned or operated; or where there are significant market failures that demand a more robust government response. It then calculates emissions reduction potential per federal dollar invested. This report does not consider interactions between existing policies and the direct investment proposals in this report that could yield even larger emissions reductions; for instance, the recent 45Q tax credit for carbon capture, utilization, and storage (CCUS) could be used in concert with a direct grant program for deploying industrial energy efficiency equipment of the kind proposed in this report to achieve greater cuts in emissions than envisioned here. This report also discusses a number of enabling investments that are important for achieving emissions reductions in the electricity, transportation, and industrial sectors but that present technical challenges in calculating associated emissions reductions. For example, renewable energy sources such as wind and solar are typically geographically dispersed, and some of the areas of highest wind energy potential—such as the Great Plains or the Gulf of Maine—are not close to population centers with high energy demand. Therefore, increasing funding for transmission infrastructure is an important enabling investment to support renewable energy deployment, even if emissions reductions cannot be directly attributed to the investment.

What this report does not try to do is present a comprehensive solution to the climate crisis. Ambitious direct federal investment in infrastructure would be a new and effective tool for reducing carbon pollution, but it should not be the only tool. The proposals in this report should be seen as one set of actions that should accompany other policy solutions to address climate change. For example, if existing tax credits supporting deployment of mature renewable energy technologies were to be extended beyond their currently planned sunsets; if a new technology-neutral tax credit were put in place to support proven emissions-reducing clean energy technologies; or if Congress were to enact a price on carbon, different levels of direct infrastructure investment would be necessary in some cases to achieve emissions reductions commensurate with those envisioned in this report.

Taken together, the policies in this report would reduce annual greenhouse gas emissions by roughly 830 million metric tons of carbon dioxide equivalent (MMTCO2e) in 2030. This represents a 13 percent reduction in emissions from current levels and would result in economywide reductions of between 24 percent and 31 percent below expected 2030 emissions levels, depending on broader economic and policy trends such as the economic growth rate and the price of natural gas. Absent other policy changes, lower levels of investment in any of these initiatives would result in commensurately higher greenhouse gas emissions in 2030. All emissions reductions in this report are expressed on an annual basis in 2030.

For more than a century, the federal government has spent money building roads. In 1956, President Dwight Eisenhower signed into law the National Interstate and Defense Highways Act, which began the decadeslong process of building a national system of interstate highways. The main purpose of these investments was to improve the efficiency of interstate travel and to more easily move goods from farm to market. President Eisenhower stated, “Our unity as a nation is sustained by free communication of thought and by easy transportation of people and goods.”⁹ Under the structure of the 1956 law, the federal government provides funding to state departments of transportation that supplements local infrastructure funding. This basic structure remains in place.

The federal government did not consider these investments’ environmental implications. Subsequent environmental legislation has sought to reduce the harms that building highways and other infrastructure facilities caused, but federal transportation funding is still devoid of meaningful environmental goals. Federal law states in general terms that highway dollars should be used for “protecting and enhancing the natural environment.”¹⁰ Yet, there are no requirements that states use federal infrastructure dollars to reduce greenhouse gas emissions or reduce low-density sprawling land use patterns that destroy natural habitats and lock people into auto-dependent mobility. States retain near total discretion for how to spend federal dollars. In effect, federal infrastructure dollars act like an unstructured block grant. To achieve the nation’s climate goals, Washington must hold states accountable to ensure that federal dollars do not support projects that will increase emissions and destroy natural habitats, and it should increase direct expenditures on projects that will help further the fight against climate change.

The power sector has historically been responsible for the largest share of U.S. greenhouse gas emissions. Since 2005, however, emissions have been declining in the power sector, driven largely by falling costs for natural gas and renewable energy technologies. In 2017, the share of electricity generated by coal fell to the lowest level recorded since World War II, while renewables accounted for 16 percent of generation, which is about double 2005 levels.¹¹ Currently, the electricity sector accounts for about 28 percent of U.S. greenhouse gas emissions, just behind transportation at 29 percent.¹²

Decarbonizing the electricity sector is important not just because of the approximately 1,800 MMTCO2e directly emitted each year, but also because many technologies to reduce pollution in other sectors—such as plug-in electric vehicles, clean manufacturing, and zero-emission buildings—rely on electrification to replace direct combustion of fossil fuels. Thus, the power grid needs to be cleaned up over time in order to make those technologies true low-carbon alternatives.

There are a number of straightforward, effective ways to reduce emissions from the electricity sector through direct federal investments. If fully implemented, the following five policy ideas would result in a reduction of at least 577 MMTCO2e in 2030.

Establish a program offering grants in lieu of tax credits for renewable energy production

Two tax credits—the production tax credit (PTC), most commonly used for wind energy, and the investment tax credit (ITC), most commonly used for solar—are among the most important ways the federal government has incentivized the development of renewable energy projects over the past several decades. The tax credits have expired and been extended several times since their creation, most recently in 2015 as part of a bipartisan deal to extend the PTC and ITC and slowly phase them down through 2022.¹³ The PTC began to decline in value in 2017, while the ITC will begin phasing out in 2019.

At the time the deal was struck, the Obama administration had finalized the Clean Power Plan, which would have set the first federal limits on the amount of carbon pollution that power plants could emit, thereby creating new incentives for utilities to install zero-emission renewable energy. However, the Clean Power Plan was stayed by the courts, and the Trump administration has finalized a replacement rule that would actually increase power sector emissions, leaving the renewable energy industry without a clear picture of the future of federal support for the growing sector.

Democrats in the House and Senate have recently begun voicing support for extending the PTC and ITC. In April, 110 House members asked the House Ways and Means Committee chair to include PTC and ITC extensions in any tax bills passing out of that committee.¹⁴ Sen. Schumer has called for making the PTC and ITC permanent.¹⁵ But key Senate Republicans, including Senate Finance Committee Chairman Chuck Grassley (R-IA), have stated their opposition to another PTC and ITC extension.¹⁶ And in recent testimony, an official from the U.S. Department of Energy (DOE) stated that he did not know whether the Trump administration has a position on a PTC or ITC extension.¹⁷

There is another option for Congress to continue—and even increase—support for getting more zero-emission renewable energy on the grid: reauthorizing and revising the Section 1603 “grants in lieu of tax credits” program that ran from 2009 to 2011 as part of the American Recovery and Reinvestment Act.

Often, renewable energy projects do not have enough income in their early years to take full advantage of the tax incentives available to them. Therefore, project operators choose to sell those PTC or ITC benefits, at a discount, to a tax equity investor and use the cash to help capitalize the project. This substantially diminishes the impact and efficiency of these tax credits.¹⁸ The Tax Cuts and Jobs Act of 2017 further complicates the picture for the PTC and ITC, since tax equity providers with sufficient tax burden to offset will become scarcer and the lower corporate tax rate means that any given project’s depreciation will be worth less than it would have been before the tax cut, thereby reducing the amount of tax equity capital available for renewable energy projects.¹⁹ Reinstating the Section 1603 program would address both of these barriers to renewable deployment by providing an upfront grant and allowing developers to obtain the full value of the incentive.

The Section 1603 program was originally created in response to a decline in the availability of tax equity investment capital to support renewable energy projects as a result of the financial crisis. From 2009 to 2010, the program supported nearly 1,500 renewable energy projects at a cost of $5.6 billion.²⁰

Reauthorizing and revising the Section 1603 grants in lieu of tax credits program could offer several advantages for supporting renewable energy projects. First, to maximize the program’s impact and guard against gold plating of investment costs, the program could limit support to projects providing competitive levels of annual estimated renewable electricity generation per dollar of capital invested. For example, the program could use the industry standard P90 estimate of the minimum projected annual output, and projects could be required to return a portion of their ITC support if they fail to match their projected output level during the first three years of operation.²¹

Second, because the program offers direct federal assistance instead of indirect tax expenditure support, Congress could direct the DOE to give priority support to renewable energy projects that meet certain criteria. For example, targeted grants could be given to renewable energy projects that deploy relatively novel technologies such as offshore wind or tall turbines, which make wind viable in new regions such as the Southeast United States; replace legacy fossil fuel power plants owned by rural electric co-ops; meet wage and labor requirements; or integrate battery storage alongside new generation capacity.²² Different benefit levels could be specified for different kinds of renewable energy projects as well.

Third, 100 percent of the federal expenditure on a program providing grants in lieu of tax credits would support renewable energy projects, rather than a significant portion flowing to Wall Street investors; indeed, a 2011 Congressional Research Service report noted that grants “may be a more efficient mechanism” than tax credits for supporting renewable energy projects.²³

And finally, if Congress is able to agree on a path to extend or revise the renewable energy tax credits—for example, by transitioning to a technology-neutral tax credit for deploying mature technologies—a program providing grants in lieu of tax credits could continue to operate in parallel to help finance deployment in less lucrative markets or to support newer technologies, such as tall turbines, thereby supporting even more deployment of zero-emission power generation.

The frequent expirations and unpredictably shifting value of the tax credits has historically led to irregular spikes and dips in the amount of renewable energy generation coming online year over year.²⁴ A 10-year grants in lieu of tax credits program would provide certainty to the renewable energy sector, utilities, and power market regulators.

As noted above, there are a number of design options that Congress could pursue for reauthorizing and revising the Section 1603 program. One option would be to reauthorize the program for $150 billion between 2020 and 2030, which would support renewable energy capacity additions of at least 30 gigawatts (GW) per year—the near-term pace that the Obama administration’s 2016 United States Mid-Century Strategy for Deep Decarbonization modeled as necessary to prevent the worst impacts of climate change.²⁵ Given the currently planned phaseouts of the PTC and ITC, onshore wind projects should be able to access such a program starting in 2022 and solar projects should be eligible starting in 2024. Offshore wind and tall-turbine wind projects in new onshore regions should be eligible starting immediately in 2020, given that the U.S. offshore wind industry is still in its infancy and merits additional near-term support.

Assuming that a $150 billion program offered grants valued at 2 cents per kilowatt-hour of production for onshore wind and solar without storage, and 3 cents per kilowatt-hour of production for onshore wind and solar when paired with four-hour battery electric storage, it could support 240 GW of new onshore wind and solar generation and storage by 2030. A program providing a grant in lieu of an investment tax credit for offshore wind with one-hour battery electric storage capacity valued at 30 percent would add another 21 GW of renewable energy capacity by 2030. All together, these renewable energy capacity additions would result in cuts of at least 504 MMTCO2e in 2030, at a cost of less than $15 per ton.

Retire remaining Tennessee Valley Authority coal assets and replace them with zero-emission generation

The Tennessee Valley Authority (TVA) was created by the New Deal in the 1930s to spur economic development in one of the most depressed regions in the country, including by bringing electricity service to large swaths of Tennessee, Alabama, Mississippi, and Kentucky for the first time. Today, the TVA still is the largest government-owned provider of electricity.²⁶ However, 24 percent of the TVA’s electricity generation comes from coal-fired power plants.²⁷

In February 2019, the TVA board voted to close two of its coal plants, saying that continuing to operate them was not economically viable.²⁸ Annual operations and maintenance costs of the TVA’s coal fleet run more than $1 billion annually, with the vast majority of that total—$762 million—going to coal fuel purchases.²⁹

Congress could direct the TVA to accelerate the closure of its remaining coal assets and replace them with zero-emission sources, as well as make funds available to offset the costs of new construction and associated transaction costs. As an example, the TVA could invest in building 7,300 megawatts (MW) of onshore wind to replace the 5,800 MW of coal that will remain in the TVA’s fleet after the two coal plant retirements mentioned above. It would cost $10.5 billion to construct that much new onshore wind generation capacity, while closing the TVA’s coal assets would avoid $7.9 billion in coal fuel costs over 10 years, with additional savings outside the 10-year window. The net undiscounted cost over the first decade of transitioning the TVA’s coal assets to onshore wind would therefore come to $3.8 billion, once transaction costs are taken into account, and cut U.S. greenhouse gas emissions by 29 MMTCO2e.

Forgive debts of rural electric co-ops and fund new zero-emission electricity generation

The United States’ network of rural electric cooperative (REC) utilities grew out of the New Deal era. Today, the 893 RECs—62 of which generate and transmit their own power, and the remainder of which transmit electricity generated by other utilities to customers—serve 42 million Americans across 88 percent of counties in 48 states.³⁰ Rural co-ops have been making strides in installing renewable energy on their grids, with such generation increasing 145 percent since 2010, but the majority of REC-owned generation comes from fossil fuel power plants, and 40 percent of it from coal, leading to 110 MMTCO2e in emissions each year.³¹

Most REC projects are financed in whole or in part by low-interest loans from the U.S. Department of Agriculture’s (USDA) Rural Utilities Service (RUS).³² However, since RECs have limited cash reserves, even a low-interest loan typically sits on a utility’s books until it is paid in full.³³ As costs for renewable energy generation continue to decline relative to coal, and as more states pursue commitments to 100 percent clean electricity generation, RECs risk being stuck with expensive stranded assets in the form of their coal-fired power plants. The federal government should step in to prevent that from happening and help RECs further accelerate their community-led clean energy transition. The RUS has $7 billion in outstanding loans supporting coal-fired power plants; forgiving those debts would enable many REC coal plants to close, cutting emissions by at least 44 MMTCO2e.³⁴

Co-ops would be eligible for the grants in lieu of tax credits program for renewable energy described previously, although in the absence of such a program, the RUS and the DOE should be authorized to offer grants to install renewable energy capacity equivalent to the generating potential of retired REC coal plants and further support any improvements to transmission and grid storage necessary to enable the transition to cleaner energy sources.

Accelerate the offshore wind industry with technical assistance and resources for permitting

After years of debate, the first U.S. offshore wind installation came online in 2016 off Rhode Island.³⁵ While the Block Island Wind Farm is relatively small—just five turbines—the offshore wind industry is poised for takeoff.³⁶ There were more than 25,000 MW of Atlantic offshore wind in the development pipeline as of June 2018, according to the National Renewable Energy Laboratory.³⁷ States planning to build significant new offshore wind resources include New York, which intends to install 9,000 MW of offshore wind by 2035, and New Jersey, which intends to install 3,500 MW of offshore wind by 2030.³⁸

With so many offshore wind projects in the pipeline, states and regional transmission organizations must plan how to most efficiently integrate these new-generation resources onto the grid. Congress should direct the DOE to make additional technical assistance resources available to states and electricity system operators to prevent conflicts between offshore wind developers and grid managers and to avoid the overbuilding of offshore transmission infrastructure.

Close coordination with fishing interests is also necessary. As of the time of this writing, the $2.8 billion 800-MW Vineyard Wind project is imperiled by concerns about impacts on the commercial fishing industry. A final environmental impact statement from the Bureau of Ocean Energy Management (BOEM) had been expected by July 2019 but was delayed in order to conduct what a BOEM spokesperson described as a “cumulative impacts analysis” that may not be issued until next year, a timetable that could endanger the project’s financing.³⁹ The recent memorandum of understanding among the Responsible Offshore Development Alliance, which represents the commercial seafood and fishing industry, the National Marine Fisheries Service (NMFS), and BOEM offers one model that may reduce this kind of delay and uncertainty in future offshore wind projects.⁴⁰ In addition, Congress should increase funding for the BOEM and the NMFS to help accelerate permitting for offshore wind installations.

As noted above, the grants in lieu of tax credits program for offshore wind could support 21 GW of new offshore wind capacity by 2030, which would cut emissions by 51 MMTCO2e. This report’s estimated emissions reductions from the grant pr