Washington’s new federal administration has drawn ambitious plans to address the climate crisis, as per a report published byMcKinsey. They are doing so to revitalize the US economy and reclaim a leadership position on the international stage. During their campaign, President Joe Biden and Vice President Kamala Harris highlighted “the opportunity to build a more resilient, sustainable economy-one that will put the United States on an irreversible path to achieve net-zero emissions, economy-wide by no later than 2050 and, in the process, create millions of good-paying jobs.”
Their vision recognizes that the global transition to a low-carbon economy is well underway. The cost of many clean-energy technologies fell significantly during the past decade-as much as 90 percent for some renewable-energy projects. The capital markets are funding the use of these technologies at historically low costs of capital, thereby accelerating scale-up investments. A climate-friendly policy tilt is taking hold in many places. With China, Japan, and the European Union having announced targets to achieve net-zero emissions, more than 110 countries, accounting for more than 70 percent of global GDP, have made net-zero pledges. Of the US states, 23 have established emissions-reduction goals, and 12 have instituted carbon-pricing policies. Groups representing prominent American companies have endorsed the use of market-based mechanisms to promote emissions reductions. Some large businesses, along with four former Federal Reserve chairs (including the new treasury secretary), have voiced support for a nationwide carbon tax. These trends are creating possibilities for American leadership, innovation, entrepreneurship, competitive advantage, and economic growth.
With the wind at their backs, government agencies and private-sector organizations can continue advancing the new national climate agenda that’s been set in motion already. The stimulus and government appropriations bill of December 2020, which received bipartisan support, set out tax incentives and funding for energy innovation and climate-related programs. And within days of his inauguration, President Biden signed executive orders initiating the process to reenter the Paris Agreement, positioning climate as a foreign-policy and national-security issue and calling on federal agencies to coordinate an all-government push to cut greenhouse-gas emissions, purchase clean-energy technologies, support innovation, conserve nature, and create economic opportunities across America.1 Making good on these intentions will require new information, products, operations, and market innovations from public officials and business leaders. To inform their work, this memo highlights four sets of practices with notable potential to deliver the prosperity, security, and social-justice outcomes that the administration has prioritized.
Fortifying and modernizing America’s infrastructure
Much of America’s infrastructure-the electricity and gas grids, seaports and airports, highways and railways, water and sewer systems, public housing and schools-is outdated or in disrepair. What’s more, infrastructure assets are vulnerable to storms, wildfires, extreme heat, floods, and other physical hazards associated with climate change. McKinsey analysis suggests that through 2050, the typical US utility could suffer some $1.7 billion in costs and lost revenues due to storm damage.
Federal agencies have now been directed to plan how they will make their facilities more resilient to climate impacts and to ensure that every federal infrastructure investment helps reduce climate pollution. Constructing new infrastructure assets could also enable the growth of clean-energy industries. Here are some actions that would support progress in these directions:
- Map and measure climate risks. New analytical tools and information assets could help federal agencies, state and local governments, and utilities and infrastructure businesses to target investments in both immediate improvements as well as long-term upgrades. Such tools might include a nationwide map indicating present and projected physical climate hazards and models quantifying the physical risks to infrastructure. With these, agencies could better assess the exposure of infrastructure assets and update resilience strategies based on forward-looking decisions about what assets to retire, relocate, or modernize and harden.
- Eliminate infrastructure bottlenecks. Bottlenecks in the power grid, road network, and other systems limit decarbonization and make it harder to achieve strong returns on the capital necessary to build resilience. Even in places with abundant energy resources, like Texas and Wyoming, the ageing grid contributes to reliability and resilience issues. To pinpoint and address bottlenecks such as these, federal officials can use new tools. A “digital twin,” or virtual model, of the electricity transmission and distribution grid, would help energy planners model system performance under alternative scenarios and prioritize upgrades.
- Incentivize capital-stock turnover. Building new green facilities get attention, but making brown sites greener is no less important for decarbonization. The federal government has several mechanisms it can use to support the transition from brown to green assets. For example, giving businesses incentives to turn over capital stock quickly (think “cash for clunkers” for ageing power plants) could speed improvements that increase reliability, cut costs, stimulate demand for greener assets, and improve health and environmental outcomes.
- Prepare to build next-generation assets. The emergence of new, globally competitive American industries, such as carbon capture and hydrogen production, will depend in part on whether next-generation infrastructure assets are built. The federal government has begun funding some of this infrastructure; for example, the Energy Act of 2020 provides tax incentives and program funding to unlock private investment. Recent legislation supports the creation of hubs for carbon capture and storage (CCS) and infrastructure for transporting CO2. These assets could help bring CCS costs below $50 per ton of CO2, making US liquefied natural gas (LNG) and crude more competitive in a global market where buyers want low-carbon commodities. Hubs for making hydrogen and hydrogen-derived products, like ammonia, could turn the United States into a major exporter of these low-carbon-intensity goods (either as commodities or as materials used in refined products such as fertilizer or steel).
Originally published at https://www.thinkesg.in on February 19, 2021.
