Establishing a Long-Term Framework
As the foundation for a successful decarbonization strategy, Congress should enact an overarching statutory framework that (1) sets a long-term goal and interim milestones, (2) charges the President with driving and coordinating cost-effective action across the federal government, (3) establishes a market-based system that incentivizes carbon reduction across the economy, and (4) provides for periodic review of progress and policies. Many of the additional policies recommended throughout this report should be incorporated into this framework either from the start or over time.
- Congress should set a national goal of making the United States carbon neutral no later than 2050 and establish an overarching statutory framework for achieving carbon neutrality, including a comprehensive review of progress every four years.
- Congress should vest the President with the statutory responsibility to direct a phased effort across the federal government toward meeting the goal of carbon neutrality.
- Congress should enact an economy-wide market-based policy that effectively puts an escalating price on carbon and other major greenhouse gas emissions.
A 2050 Goal
Congress should set a national goal of making the United States carbon neutral no later than 2050 and establish an overarching statutory framework for achieving it. Carbon neutrality should be defined as a net balance of greenhouse gas emissions and withdrawals across the U.S. economy. To make carbon neutrality feasible, and to achieve it as cost-effectively as possible, this goal should allow for a full range of emissions reduction and sequestration solutions.
To further orient the government, the private sector, and the public at large, Congress should also establish, or direct the President to establish, interim milestones defining a trajectory toward carbon neutrality by 2050.
White House Leadership
Decarbonizing the economy requires strong, steady leadership from the top. Congress should vest the President with the statutory responsibility to direct—and should maintain continuous oversight of—a phased effort across the federal government toward meeting the goal of carbon neutrality. Lead responsibility should be assigned to a designated White House office headed by a Senate-confirmed appointee. This office should coordinate across executive branch offices and
- Direct the effective, timely, and cost-effective implementation of climate-related policies
- Ensure the inclusion of climate-related needs and priorities in the President’s annual budgets
- Develop a low-carbon innovation agenda and carbon-neutrality strategies for key sectors of the economy
- Support the climate-related efforts of state, local, and tribal governments
- Regularly assess progress toward milestones and the 2050 goal, as well as opportunities to accelerate progress
- Recommend to Congress further actions to ensure the achievement of the 2050 goal
This White House office should also engage closely and regularly with the private sector, labor groups, public interest groups, and other stakeholders to gather broad input into policy development and implementation. In addition, it should direct public education efforts across the government to encourage and equip citizens to contribute to the decarbonization effort.
Economy-wide Carbon Pricing
A central element of the overarching framework enacted by Congress should be a market-based policy that effectively creates an escalating, economy-wide price on carbon emissions.
In economic terms, climate change is a “negative externality,” a symptom of the market’s failure to internalize the social and environmental costs of carbon pollution. Market-based policies aim to correct this failure by assigning a price to this pollution, so that it is incorporated into economic decision-making. This price signal incentivizes carbon reduction across the economy, though it will spur action in some sectors more than in others. Market-based policies generally are more cost-effective than command-and-control policies because, rather than mandate specific technologies or approaches, they allow emitters the flexibility to choose their least-cost options. Market-based approaches also provide an ongoing incentive for low-carbon innovation and, depending on their design, can generate revenue for climate-related or other purposes. Globally, 54 carbon pricing programs had been adopted as of September 2019.
While pricing is a cornerstone of a long-term decarbonization strategy, the market “pull” of an economy-wide price signal must be complemented by other policies that either create a market “push” (e.g., by supporting the development of critical technologies) or address other types of market failures (e.g., the split incentives between a building owner and occupant). Such complementary policies are recommended throughout this report. The need for such policies depends on the given sector and on the timing and strength of a carbon pricing program.
An economy-wide market-based policy could take many forms. The three major options are a carbon tax, cap and trade, and tradable performance standards.
Carbon Tax. The most basic form of a market-based policy is a tax that sets a price on each unit of pollution. The additional expense gives an emitter an ongoing incentive to use available means, and develop innovative means, of reducing emissions. The more that emissions are reduced, the less tax a company pays. The revenue raised by such a policy can be rebated to Americans, channeled to climate-related projects, and/or utilized for other purposes. A tax-based approach offers greater predictability for companies on compliance costs but, without an ancillary mechanism, less certainty on environmental outcomes.
Cap and Trade. Another option is a cap-and-trade program that sets a cap on total U.S. emissions, auctions or allocates a corresponding quantity of emission allowances to emitters, and allows emitters to trade them. An emitting company can choose to reduce its emissions or buy additional allowances, whichever is more economical. A company able to reduce emissions more than required can bank its excess allowances for future use or sell them to a firm facing higher emissions-reduction costs. If some or all allowances are auctioned, the resulting revenue can be channeled to climate-related and/or other purposes. A cap-and-trade approach can offer greater certainty about environmental outcomes but less certainty for companies about the cost per unit of pollution. A cap-and-trade approach can also be linked to other comparable cap-and-trade programs to allow trading across jurisdictions, giving companies more flexibility and reducing price volatility.
Tradable Performance Standards. A third option is a set of sector-based performance standards that allow for trading. One example, in the case of the power sector, is a clean energy standard that requires utilities to obtain a certain portion of their electricity from a defined set of clean or renewable sources. Allowing utilities to trade between different types of qualified clean energy effectively establishes a market-based carbon price. Other types of performance standards could be established for all of the major sectors of the economy; allowing trading across sectors would yield an economy-wide carbon price. Offering covered entities the option of an alternative compliance payment or applying a transfer tax on source-to-source transactions could also raise revenue, though not at the level of cap-and-trade or carbon tax policies.
Depending on the type of market-based policy Congress chooses to enact, some or all of the following design principles should be applied:
Environmental integrity. A market-based policy should be robust enough to deliver timely emissions reductions and include mechanisms that provide environmental certainty that the emissions goals will be met.
Predictability and transparency. The policy should be stable and predictable to ensure that investment and innovation are incentivized. This could include a predictable escalation rate in a tax-based approach or a price floor in a cap-and-trade program. Any program changes should be phased in or introduced with sufficient advance notice.
Competitiveness. The policy should include safeguards to protect the competitiveness of energy-intensive, trade-exposed industries and prevent emissions “leakage” to other countries. These safeguards could include preferential emissions allocations for energy-intensive, trade-exposed industries under a cap-and-trade program or a border tax adjustment under a carbon tax.
Cost containment. The policy should include measures to reduce price volatility and moderate unexpectedly high compliance costs. Depending on the type of market-based policy established, these could include the banking and borrowing of allowances, emissions offsets, a ceiling and floor on allowance prices, or a credit, dividend, or refund to cover program costs for certain types of participants.
Alignment with state policies. The policy should provide for an economy-wide framework while allowing states the option of continuing existing market-based programs, provided they are deemed equivalent (or more stringent) and do not impose an undue burden on participants.
Inclusion of complementary federal measures. The policy should provide for complementary federal measures needed to accelerate key technologies and to address other market failures. It also should retain or establish back-stop regulatory authorities that can be employed if emissions reduction targets are not being met.
The overarching statutory framework established by Congress should include a mechanism for a comprehensive review every four years. This review should be directed by the White House and result in a report to Congress assessing progress toward interim milestones and the 2050 carbon-neutrality goal, and recommending any necessary policy adjustments. It also should inform periodic updates of the United States’ nationally determined contribution under the Paris Agreement.
- The review should consider:
- The findings of the latest National Climate Assessment
- The effectiveness, cost-effectiveness, and economic impact of federal climate policies
- The contributions of state, local, tribal, and private-sector efforts
- Technological and market advances or setbacks affecting the scale or speed of decarbonization efforts
- The status of decarbonization efforts of other major economies
- Opportunities to strengthen economic growth and U.S. competitiveness
Rapidly accelerating low-carbon innovation will be essential to reaching carbon neutrality by mid-century. Top priorities over the coming decade are to establish and implement a long-range low-carbon research and development agenda, significantly scale up federal resources for low-carbon innovation, and optimize the low-carbon innovation system.
- Congress should establish decarbonization as a principal objective of the research mission of all relevant federal agencies and should direct the White House to lead an interagency innovation effort, including research, development, demonstration, and deployment strategies aimed at carbon neutrality in the transportation, power, buildings, and industry, land use, and oil and gas sectors.
- Congress should ramp up funding for climate-related research and development to at least $20 billion per year by 2030, including $2 billion per year for the Advanced Research Projects Agency–Energy, and should provide $50 billion to $100 billion over the next decade for high-impact demonstration projects.
- The federal government should strengthen administrative capacity and management practices to ensure the efficient and timely use of research funding and should consult closely with the private sector and other non-government stakeholders in developing and executing the low-carbon innovation agenda.
Setting the Low-Carbon Innovation Agenda
Congress and the President should work together to orient all relevant federal agencies and capabilities toward the objective of generating and advancing the innovative technologies needed to decarbonize every sector of the economy.
Congress should establish decarbonization as a principal objective of the research mission of all relevant federal agencies as part of future agency reauthorizations; codify the Department of Energy’s (DOE’s) Quadrennial Technology Review—an assessment of energy technologies and their pathways to commercialization—in order to regularly assess gaps and opportunities and target federal resources; and direct the White House to lead an interagency effort to develop strategies for carbon-neutrality research, development, demonstration, and deployment (RDD&D) for each major sector.
As part of the White House-led decarbonization effort recommended above, the President should designate an office within the Executive Office of the President to oversee the alignment and execution of this low-carbon innovation agenda across the federal government. The office will lead interagency efforts to produce the Quadrennial Technology Review and to develop and implement sector-specific innovation strategies. This office will also direct targeted efforts across the government to accelerate technology transfer, working through programs such as the Office of Technology Transitions within DOE to improve private-sector licensing and develop other commercialization partnerships.
Funding Low-Carbon Innovation
The rationale for federally funded research in societally critical areas is well established. Privately funded technology development often produces public benefits beyond those that a firm is able to monetize, a “spillover” phenomenon that leads firms to consistently underinvest in research relative to societally optimal levels. This challenge is exacerbated in the climate arena, as many firms are neither required nor easily able to pass along to consumers the costs of reducing their emissions or avoiding climate impacts.
Funding priorities should be guided by the White House-led, low-carbon innovation agenda and should target clean electricity; carbon capture, utilization, and storage; energy storage; advanced clean fuels; advanced manufacturing; renewable thermal energy; advanced computing; and advanced agriculture. (See Box 2, Innovation Priorities.)
Congress has significantly increased funding for innovation, particularly early-stage research and development. Funding for energy-related research at DOE increased by more than $1.3 billion from fiscal year (FY) 2016 to FY19. However, the United States is still not on a path toward doubling funding for low-carbon research by FY21, a pledge it made with 19 other countries as part of the Mission Innovation initiative launched at the 2015 Paris summit. What’s more, even greater resources will be needed in the years beyond, both to continue scaling up energy-related research and for non-energy, climate-related RDD&D. To provide the foundation for a robust national innovation ecosystem, Congress should ramp up funding for climate-related research and development to at least $20 billion a year by 2030.
Where possible, this increased funding should be directed toward scaling up existing programs and should prioritize engagement with private-sector partners. The Advanced Research Projects Agency–Energy should be funded at $2 billion a year by 2030, up from $366 million in FY19. DOE’s Advanced Manufacturing Office should also be elevated and tasked with coordinating manufacturing RDD&D efforts across the DOE complex. Additional priorities include scaling up programs such as the U.S. Department of Agriculture’s Agriculture Advanced Research and Development Authority and bolstering interagency and public-private partnerships such as the Manufacturing USA institutes.
Translating successful, early-stage applied research into commercially competitive technologies often requires support at the critical intermediary step of technology demonstration. Federal support at this stage is especially important in the case of technologies requiring large-scale demonstration projects that carry technical, policy, and market risks—such as carbon capture, utilization, and sequestration or advanced nuclear. Given the cost of such projects, and the urgency of building confidence that the necessary technologies will be available, Congress should provide $50 billion to $100 billion over the next decade to support a robust portfolio of high-impact, low- and zero-carbon technology demonstration efforts.
Federal support for innovation must also extend to de-risking first-of-a-kind deployment projects that are unable to secure project financing on their own. For example, DOE’s Loan Program Office, which provides project finance for large-scale energy infrastructure projects, can play an important supporting role, in partnership with the private sector, to accelerate the deployment of new, high-impact technologies. While the Loan Program Office currently has roughly $40 billion in existing loan authority, it has not issued new loans since 2015. It should immediately begin issuing new solicitations for its existing authority, which could leverage up to $100 billion in new energy infrastructure investments. Further, the Loan Program Office should increase its risk appetite, to increase the number of potentially transformative projects it supports.
The Small Business Innovation Research and Small Business Technology Transfer programs, each of which receives a percentage of research budgets at qualifying federal agencies, play an important role in ensuring that small businesses have a chance to compete and contribute meaningfully to the innovation ecosystem. As federal research funding increases, these programs should maintain at least their current funding percentage as part of federal agencies’ total research budgets.
Optimizing the Innovation Ecosystem
Additional funding for low-carbon RDD&D is only part of the solution. Indeed, these investments could produce far less innovation than is needed while diverting resources away from other priorities unless the administrative capacity of state and federal agencies tasked with carrying out a low-carbon RDD&D agenda is enhanced, interagency coordination is strengthened, and technology transfer is made more effective.
The current U.S. research network—including the national laboratories, universities, nonprofits, and the private sector—is among the world’s best. But it must be made even better, and a critical first step in improving the efficiency of the innovation system is streamlining DOE’s management of the national laboratories to provide them with greater autonomy. DOE should focus on setting program objectives, fostering coordination among the labs, and ensuring they have the capacity and processes in place to work efficiently within and across offices and research programs.
At federal agencies implementing the low-carbon innovation agenda, the government must increase administrative capacity and standardize best management practices to ensure efficient and timely use of research funding. For instance, administrative issues at DOE have slowed the disbursement of RDD&D funds already appropriated. Further, agencies need to adopt a more risk-tolerant approach to better target federal support to research that is too risky for the private sector but provides public benefit. White House-level leadership should ensure the stronger interagency coordination needed to optimize the innovation ecosystem, as well as strong intra-agency coordination. For example, to avoid the challenges faced by recent demonstration projects, DOE should consolidate oversight of demonstration projects into a single office staffed with project management experts—a process successfully implemented within the DOE National Nuclear Security Administration.
The government’s success in fostering a robust innovation ecosystem will depend on its ability to strengthen and simplify public-private collaboration. The White House should engage the private sector and other non-government stakeholders in the development of the low-carbon innovation agenda. The national laboratories must prioritize technology transfer efforts, and the government should scale up new institutional models fostering collaboration among industry, academia, and public researchers, such as DOE’s Energy Innovation Hubs.
States can also foster a robust innovation ecosystem—and seize opportunities in the emerging low-carbon economy—by aligning networks and institutions toward strategic, regionally focused decarbonization priorities. States should work with the private sector to assess state innovation assets and capacities to better target their efforts. State and local governments also should support local entrepreneurs by funding low-carbon technology incubators, providing access to grants and tax incentives, and fostering connectivity between the research and business communities.
A Vision: Innovation in 2050
The United States has leveraged its world-class innovative prowess to produce breakthrough technologies that help to sustain a growing, decarbonized global economy. A strong infusion of federal resources and close public-private collaboration have nurtured a sophisticated and integrated U.S. innovation ecosystem. The resulting breakthroughs have played a crucial role in meeting U.S. and global climate goals and in strengthening U.S. competitive and geopolitical positioning as the country helps lead the global transition to carbon neutrality. U.S. companies play a dominant role in driving innovation, partnering with universities, states, and federal agencies and laboratories to generate a range of advanced technologies that provide stable and affordable energy supplies, boost industrial and agricultural productivity, and create jobs and economic growth, all while enabling decarbonization. Other companies invest in the United States to tap into the opportunities produced by its unrivaled innovation ecosystem.
Box 2: Innovation Priorities
A technology-inclusive approach to decarbonization requires continuous innovation across the full technology development cycle, including: basic, applied, and translational research; demonstration projects; first-of-a-kind deployments; and incremental post-deployment advances. Countless technologies will be needed across every facet of the economy. The following are among the technologies that hold particular promise and should be high priorities in a decarbonization-focused RDD&D agenda.
Clean electricity. Given the central role of electrification in a decarbonized future, continued research into low-and zero-carbon sources of electricity is essential. It will be important to pursue advanced renewables such as solar perovskites, offshore wind and marine energy, and low- and zero-carbon fuels like hydrogen. Other emissions-free technologies, such as small and advanced nuclear, are also key research priorities.
Carbon capture, utilization, and storage. Technologies to capture, utilize, and store carbon can assist in managing emissions from power generation and, more critically, from industrial processes. Further, technologies such as direct air capture that remove CO2 directly from the atmosphere could prove transformative. The development of commercial products from captured carbon will play an important role in generating demand for carbon capture technologies. Further research is also needed into sequestration techniques.
Energy storage. Energy storage can significantly boost the efficiency of the overall electricity system and the value of a variety of low- and zero-carbon generation technologies. Improvements in non-lithium-ion battery technology will be important to overcome performance and materials supply constraints. Other priorities include advanced battery chemistries and materials; fuel cell technologies, which have numerous applications including vehicles and stationary power; and approaches such as electrolysis that can be used to produce zero-carbon hydrogen, meeting the need for long-duration, seasonal energy storage.
Advanced clean fuels. Not all energy end uses are well suited to electrification and some—such as aviation—are especially emissions-intensive. In these cases, low-carbon liquid fuels will be needed. Hydrogen, biofuels, and ammonia are the most promising options in a variety of applications, and additional research is needed into these and other synthetic fuels.
Advanced manufacturing. New technologies are needed to reduce emissions from industrial processes themselves and from the large quantities of energy they consume. Priorities include research into renewable thermal energy, combined heat and power systems, waste heat recovery, and alternative manufacturing processes, including additive manufacturing and circular manufacturing.
Renewable thermal energy. Thermal energy is a significant source of emissions, particularly in the buildings and industrial sectors. Approaches such as bioenergy (including biogas, renewable natural gas, and biomass), solar fuels, solar thermal, geothermal, and renewable electrification will play an important role in reducing emissions by providing renewable thermal energy.
Advanced computing. Supercomputing, machine learning, and deep learning can enable significant decarbonization across the entire economy, including efficiency gains from logistics, supply chain, and power grid management. Advanced computing can also greatly accelerate the development of advanced materials and will play an important role in the advancement of autonomous vehicles.
Advanced agriculture. Precision agriculture can help reduce farm inputs, optimize yields, and improve soil health and increase carbon sequestration. Improved soil-carbon monitoring equipment can provide better information about the efficacy of new agricultural methods. Other priorities include research to develop low-carbon agricultural inputs and shrink the emissions footprint associated with protein production (e.g., plant-based protein, feed additives).
Estimates of the financial resources that must be marshalled to decarbonize the U.S. economy vary widely, potentially running into the trillions of dollars. Only some of these costs, however, will be additional to what would otherwise already be spent to procure energy, goods, and services. Most of the financial resources needed for decarbonization will, rather, reflect a shift in investment flows.
Many of the policies recommended in this report—from economy-wide carbon pricing to measures to decarbonize particular sectors—will create incentives for this shift in long-term investment. Here we outline additional policy priorities over the coming decade to broadly mobilize private capital toward decarbonization. Top priorities include better informing private investment through the disclosure of companies’ climate-related risks and opportunities, assessing and managing the broader risks that climate change poses to the U.S. financial system, and using public investment to leverage significantly higher levels of private capital for decarbonization in the United States and abroad.
- Congress should direct the Securities and Exchange Commission to require public companies to disclose material climate-related financial risks under a range of climate scenarios and their strategies for managing those risks.
- Congress should require the Federal Reserve to integrate consideration of climate-related risks into the periodic stress testing required of major financial institutions.
- Congress should create a national green bank to leverage private investment in clean energy, energy efficiency, and other activities contributing to decarbonization. More states and localities should also create green banks for use in their own markets.
Providing Climate-Risk Information to Investors
It will be easier for private capital to shift into low- and zero-carbon investments—and into companies that are resilient to changing physical and policy environments—if investors better understand the climate risks and opportunities that companies face.
Investors are increasingly realizing that climate change, both physical risks (from climate change itself) and transition risks (from societal responses to climate change), could affect the value of their investments. Many are asking companies to disclose more information so that they can better assess climate-related investment risks. In 2019 alone, dozens of shareholder resolutions were filed with companies in a range of sectors seeking climate risk analyses and strategies, targets for reducing emissions or increasing the use of renewable energy, and more. Groups of investors, such as the Climate Action 100+ initiative, which has more than 360 investors in dozens of countries, have called on companies to strengthen climate-related disclosures, improve governance on climate change, and take actions to reduce emissions and improve their resilience to climate risks. Nearly 7,000 companies disclosed climate-related information in 2018 through CDP (formerly the Carbon Disclosure Project). A growing number of companies are implementing the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, which focus on corporate governance, strategy, risk management, and metrics and targets. As of July 2019, more than 800 companies and other organizations had expressed their support for the task force recommendations.
While this activity has increased the availability of climate-related financial information from a range of companies, investors still often lack relevant information on material climate-related risks across their portfolios. The U.S. Securities and Exchange Commission issued high-level guidance nearly a decade ago describing how its existing rules may require climate-related disclosures depending on the facts, circumstances, and materiality for any particular company. To provide more relevant and consistent disclosure across the private sector, Congress should direct the Securities and Exchange Commission to require public companies to disclose material climate-related financial risks under a range of climate scenarios and their strategies for managing those risks. These requirements should be informed by a working group of investors, issuers, rating agencies, standard-setting organizations, and nongovernmental organizations. The requirements should encompass both physical and transition risks, build on systems and frameworks that already exist, provide for different metrics relevant to different sectors, and avoid undue burden on companies. Absent action by Congress, the Securities and Exchange Commission should act under its existing authority to enhance climate-risk disclosure requirements.
Managing Broader Impacts on the Financial System
Climate change poses risks not only to individual companies but also to the financial system as a whole. To properly guide private capital, it will be important for policymakers and investors to understand potential systemic risks, such as business interruptions, bankruptcies, and macroeconomic shocks caused by extreme weather events; reductions in the value of assets and companies dependent on fossil fuels; increased credit risk exposure for firms with loans tied to coastal real estate; and other types of systemic volatility.
In March 2019, the Federal Reserve Bank of San Francisco issued an economic letter noting that these climate-related risks “are relevant considerations for the Federal Reserve in fulfilling its mandate for macroeconomic and financial stability.” Less than a month later, the Network for Greening the Financial System—which includes 36 central banks including those of the United Kingdom, France, and China—recommended that central banks and supervisors integrate climate-related risks into financial stability monitoring and supervision. In July, the U.S. Commodity Futures Trading Commission, which oversees markets for derivatives and other products, voted to establish a Climate-Related Market Risk Subcommittee. The subcommittee is examining the risks posed by climate change to the stability of the U.S. financial system, how market participants can integrate climate-related stress-testing into financial and market risk assessments and reporting, and more.
Further steps are needed. In April 2019, the Bank of England directed financial institutions to conduct climate-related scenario analyses and stress testing to identify near- and long-term risks to their business models. Congress should similarly require the Federal Reserve to integrate consideration of climate-related risks into the periodic stress testing required of major financial institutions. As a first step, the Financial Stability Oversight Council, which is charged with identifying and responding to risks to the stability of the U.S. financial system, should form a subcommittee to define climate-related risks and to develop guidance to financial institutions on how to identify such risks. The Federal Reserve should also map climate risks within the financial system by adopting risk indicators, incorporating them into analyses and financial stability monitoring, and integrating them into its supervision of financial firms.
Leveraging Private Finance
Given the scale of investment needed to decarbonize the economy, public dollars must be strategically deployed to leverage much greater amounts of private capital.
Green banks are one way to leverage private investment. Several states around the country—including Connecticut, Hawaii, Michigan, Nevada, New York, and Rhode Island—operate programs like green banks to attract private capital by offering products and services such as credit enhancements, loans, and aggregation to lower risks or reduce transactional costs. Serving largely as revolving loan funds, green banks have leveraged private investment in projects such as solar installations, microgrid construction, micro-hydro generation, electric vehicle-charging infrastructure, and energy efficiency upgrades. The Connecticut Green Bank, for example, invested $237 million in state funds between FY12 and FY18 to leverage $1.2 billion in private investment, roughly a 6:1 leverage ratio. Congress should create a national green bank, as a corporation owned by the federal government, to provide capital to state and local green banks (which are often under-capitalized) and/or to offer its own investments and products that leverage private investment in clean energy, energy efficiency, and other activities contributing to decarbonization and climate resilience. In addition, more states and localities should create green banks designed to leverage private capital for emissions-reducing projects in their markets.
Certain U.S. entities could similarly serve the role of a green bank on the international stage, helping to leverage U.S. innovation toward decarbonization globally and to strengthen U.S. companies’ competitiveness in the global clean energy market. The newly restored U.S. Export-Import Bank and the new U.S. International Development Finance Corporation (which was created largely from the Overseas Private Investment Corporation) can help increase the flow of private capital by mitigating specified investment risks. The Export-Import Bank, the official U.S. export credit agency, facilitates the export of U.S. goods and services, while the Development Finance Corporation offers financial products to support private investments in the developing world. Both should support a rapid transition to low-carbon finance.
Climate bonds are another mechanism for directing capital into climate solutions both in the United States and abroad. As a subset of the broader green bond market, climate bonds are like regular bonds but are designed to raise capital for climate mitigation and adaption, including in the energy, transport, buildings, and land use sectors. Globally, in 2018, more than $23 billion of bonds were certified by the Climate Bonds Initiative as meeting the Climate Bonds Standard, which provides sector-specific eligibility criteria. Climate bonds can be issued by governments, banks, other financial institutions, and non-financial corporate actors. To encourage more climate bond activity, Congress should explore adopting preferential tax treatment (e.g., incentives for issuers or investors) for the issuance of climate bonds that are verified as advancing climate mitigation and adaptation solutions.
A Vision: Finance in 2050
Private investment in energy and other sectors has shifted to low-carbon pathways, and climate-related risks and opportunities are fully incorporated into financial decision-making. A major shift in public resources has leveraged far greater amounts of private investment in low-carbon solutions, which now match or out-perform alternative investments and meet widespread investor demand for environmental performance. In addition, the financial sector and the financial system as a whole have become resilient to systemic climate-related risks, contributing to macroeconomic and financial stability.
Ensuring a Just Transition
Policies to decarbonize the U.S. economy must be bold, but they must also be equitable. They must bring everyone into a zero-carbon future, including frontline communities, such as low-income communities and communities of color, and those whose economic fortunes have been closely tied to high-emitting energy sources and industries.
Some policies recommended in other parts of this report will have multiple benefits for vulnerable communities. Measures to accelerate the adoption of low- and zero-carbon power and transport technologies, for instance, will help reduce local air pollution in some communities. This section recommends additional policy priorities over the coming decade to ensure a just, equitable transition to a zero-carbon economy. While an essential element of an equitable transition is strengthening the resilience of frontline communities to the impacts of climate change, the focus here is on steps more closely related to the decarbonization challenge.
A top priority is ensuring that pollution-burdened and low-income communities—as well as small businesses—are not harmed by and can benefit from climate policies. Another priority is to help build a sound economic future for communities and workers disadvantaged by the transition away from high-carbon fuels.
- Policies that could increase the cost of energy should include mechanisms to minimize any cost burden on low-income populations and small businesses.
- A share of climate investment should be dedicated to deploying solutions and infrastructure in historically marginalized communities, including urban tree planting, energy efficiency retrofits, community solar, electric vehicle charging, and low- and zero-carbon public transit.
- Congress should increase support to communities in transition to train workers and foster new industries that can contribute to a stable economy and tax base.
Cushioning the Impact and Spreading the Benefits of Climate Policy
Policies to address climate change should be designed in ways that avoid disproportionate impacts on vulnerable families and communities and on small businesses.
Policies that could increase the cost of energy should include mechanisms to minimize any cost burden on low-income populations. For instance, a portion of any revenue raised through an economy-wide carbon pricing program should be directed toward rebates or dividends to alleviate the regressive impacts of the carbon price. Different measures may be needed to avoid the regressive impacts of other types of climate policies.
Likewise, many frontline communities are concerned that while market-based policies such as carbon trading will reduce overall greenhouse gas emissions, they may at the same time contribute to pollution hotspots in communities already experiencing higher levels of local air pollution. To address environmental injustice, a decarbonization strategy must include measures to promote the reduction of conventional air pollutants in burdened communities, thereby improving public health and quality of life, and monitor pollution levels more closely to ensure standards are enforced.
Beyond avoiding harms, climate policies should also ensure that low- and zero-carbon solutions and technologies are accessible to all. A share of climate investment must be dedicated to deploying solutions and infrastructure in historically marginalized communities, including urban tree planting, energy efficiency retrofits, community solar, electric vehicle charging, and low- and zero-carbon public transit. Similarly, clean energy deployment programs, energy efficiency upgrade programs, and zero-carbon innovation programs should be designed in ways to make it easier and more cost-effective for small businesses to participate.
Helping Economies in Transition
An equitable decarbonization strategy must also address the needs of workers and communities disadvantaged in the transition to a zero-carbon economy. Communities long dependent on high-carbon industries have played an integral role in building America’s economy and, as these industries contract, need help revitalizing and diversifying their economies. Elsewhere around the country, even as decarbonization creates new economic opportunities, some industries and workers may be disadvantaged.
Using revenue from carbon pricing or other resources, Congress should increase support to communities in transition to train workers and foster new industries that can contribute to a stable economy and tax base. Affected communities should lead in charting their economic futures and have a direct voice in shaping place-based strategies addressing structural needs, such as broadband access, that are critical to their economic development.
A Vision: Just Transition in 2050
The decarbonization of the U.S. economy has brought benefits to all Americans, including frontline communities and communities once heavily reliant on greenhouse gas-emitting energy sources and industries. Affordable low-and zero-carbon energy and transport are accessible by all, and historically marginalized communities have cleaner air and healthier neighborhoods. Workers in high-emitting industries have transitioned to good jobs in other fields, and communities that had been reliant on those industries have thriving, diversified economies.