A Look at the Cost of Clean Energy

Eakinomics: A Look at the Cost of Clean Energy

The Biden Administration has declared climate policy to be its top priority, rejoined the Paris Agreement on climate change, and announced a goal of reducing U.S. greenhouse gas (GHG) emissions by 50-52 percent from 2005 levels by 2030. Obviously, the administration believes there are benefits to reducing U.S. GHG emissions. But it is not enough to simply tout the virtues of reduced concentrations of GHGs in the atmosphere, the resulting reduction in the rise of atmospheric temperatures, and the lessened impact of climate change on the organization of societies around the globe. A benefit-cost test has two sides, and the cost side deserves some serious thought, especially because the United States is responsible for roughly 15 percent of global GHG emissions – so if the other 85 percent do not change, the benefit of the U.S. action will be nil.

Achieving this goal will require a massive change in U.S. energy sources, moving away from carbon-intensive sources such as coal, oil, and natural gas and toward greater use of wind, solar, geothermal, hydroelectric, and (potentially) nuclear power. The costs of such a change will be enormous.

Ewelina Czapla gives us a flavor of this cost in her recent paper “Household Implications of the Biden Administration’s Clean Energy Agenda.” When the administration announced its emissions-reduction goal, it also laid out a sector-by-sector framework for achieving it. In the electricity sector, it calls for all carbon emissions to be removed from electricity generation by 2035. What would that cost?

Fortunately, the Democratic leadership of the House Energy and Commerce Committee has introduced the CLEAN Future Act, which has exactly the same goal and thus can serve as a model for the administration’s potential intentions moving forward. Czapla develops two scenarios – one where all fossil fuel generation is eliminated and another where carbon capture technology is applied to natural gas combined-cycle facilities – for meeting this goal.

It should surprise nobody that the costs in these scenarios are very large. To make the transition, it would be necessary to increase investment in generation by 300 percent in the coming 14 years, yielding approximately $2 trillion of investment in capital and operations and maintenance costs. This sum is a lower bound because it does not include the costs of creating a nationwide grid to transport this clean energy.

To bring the magnitude of the costs home, remember that electric utilities will have to do this investment, and that means their customers will have to foot the bill. The result is an additional $90 per month cost for electricity consumers. For perspective, in 2019, the average monthly bill in the United States was between $75 and $168 depending on the state, so that addition translates into a percentage rise of 45 to 120 percent. The benefits of removing all carbon emissions from electricity generation may well outweigh such costs, but first we have to fairly assess their scale. In this case, the costs will be massive.