Red Light, Green Deal, Yellow Light: Biden’s Energy Roadmap

President Joe Biden rode into office with big plans for green energy in the United States and a focus on climate policy measures. But his attempts to address the complex energy and environmental issues of climate change have encountered significant challenges: a perfect storm of factors that traverse politics, geopolitics, economic nationalism, legislatures, regulatory agencies, supply chains and market forces across multiple sectors. The contentious nature of American politics, as well as a series of inopportune global events, all but derailed Biden’s most ambitious goals. In effect, his administration has had to make peace with much more limited climate action. Indeed, Biden has continued backing US oil and gas production amid geopolitical and domestic difficulties related to renewable energy infrastructure and production.

This issue brief outlines the hurdles Biden’s energy policy has encountered and the limitations of his plan going forward. After initially getting the “red light” on his first plan, Biden has succeeded in getting a green light for a scaled-down version of the law. However, several “yellow lights” are likely to slow down its implementation.

Policy Plans

One of Biden’s first executive orders addressed the “existential” nature of climate change.[1] “We have a narrow moment to pursue action at home and abroad in order to avoid the most catastrophic impacts of that crisis and to seize the opportunity that tackling climate change presents,” Biden stated. Consequently, he proposed a federal government-wide approach to address the climate crisis: “It is the policy of my administration … to place the climate crisis at the forefront of this nation’s foreign policy and national security planning, including submitting the United States instrument of acceptance to rejoin the Paris Agreement.” 

In line with such construed policy direction, during his first days in office, the president’s most visible actions were: 1) the veto of the Keystone Pipeline project that would bring oil from Canada to the US Gulf Coast; 2) a moratorium on US oil and gas leasing on federal lands; and 3) a withdrawal of certain offshore areas in Arctic waters and the Bering Sea from leasing. To stress the administration’s movement away from supporting oil and gas development, Biden proposed that the US promote ending “international financing of carbon-intensive fossil fuel-based energy.” The message seemed clear: US energy policy, both domestically and abroad, was to shift quickly away from oil and natural gas.

Moving forward, Biden assembled a comprehensive plan with specific timelines to rapidly reduce greenhouse gas emissions (plus unrelated but ambitious social and infrastructure spending). The plan called for America to generate 80% of its electricity with renewables by 2030 and carbon-free electricity by 2035; a 50% reduction in CO2 emissions economy-wide by 2030 and a net-zero economy by 2050; and electric vehicles (EV) representing 50% of all new vehicle sales by 2030. All of this was outlined in the sprawling Build Back Better (BBB) initiative the administration championed, which promoted the creation of high-paying jobs as it bolstered “domestic supply chains and position[ed] the US to ship American-made, clean energy products — like electric vehicle batteries — around the world.”[2] The plan also included a government-wide environmental justice initiative with the goal of delivering 40% of the overall benefits of relevant federal investments to disadvantaged communities. Additionally, the Biden administration supplemented its legislative agenda with stricter environmental regulation, usually by reversing the actions undertaken by the previous administration. 

The following sections address what happened with the BBB initiative and what can and cannot be achieved through legislation, market regulations and executive action, as well as the limitations regarding resources and infrastructure development for green energy. Factors beyond politics and policy are also considered, revealing that progress on climate action is going to be slower than the rapid transition Biden initially envisioned.

Legislation 

Together with the COVID relief package and the proposed $2 trillion American Jobs Act, the BBB plan was breathtaking in scope — analogous to President Franklin D. Roosevelt’s (FDR) New Deal, a series of programs and projects instituted during the Great Depression that have fundamentally changed US government’s role, especially in the economy. The entire $1.75 trillion BBB initiative had been predicated upon massive spending across various sectors of the American economy. Energy would have been one of the main areas of investment, in line with the idea of a transition away from fossil fuels toward a less CO2-intensive economy. If enacted in its entirety, the BBB would spur a record of $555 billion in clean energy and climate investment across different sectors. The energy part of the initiative included subsidies for wind, solar, EVs, EV charging equipment and increased funds for climate and energy-related research and development.

But unlike FDR’s New Deal, Biden’s plan had limited political support at home — far from the broad electoral mandate and definite majorities in both chambers of Congress enjoyed by FDR. When Biden became president, he inherited a deeply divided nation, with Democrats holding only narrow majorities in both the House and Senate. In fact, although Democrats retained control of the House in the 2020 election, their majority shrunk to nine seats. And while Democrats gained seats in the Senate, they only managed to achieve an even split at 50-50, a far cry from the 60 votes that would protect them from a filibuster. All of this meant that Biden faced an uphill battle to get the BBB passed

One element of Biden’s plan that was more uniformly supported was the call for “made in America” manufacturing and high-paying union jobs.[3] Strengthening domestic supply chains and positioning the United States to ship American-made, clean energy products was Biden’s goal. “Not a contract will go out, that I control, that will not go to a company that is an American company with American products, all the way down the line, and American workers,” he stated. 

But even this grand deal was pulled apart by separate infrastructure legislation, which had bipartisan support and was ultimately enacted as the Infrastructure Investment and Jobs Act of 2021. Besides a large amount of funding allocated for traditional infrastructure — roads, bridges, ports, water facilities, mass transit, etc. — the infrastructure bill provided $7.5 billion to build out a national network of EV chargers and more than $65 billion for investment, including the largest federal investment in clean energy transmission and grid upgrades ever. But the narrow majority in the Senate allowed Sens. Manchin (D-WV) and Sinema (D-AZ) to stop the BBB in its original expansive form. Eventually, a more limited version was passed: the Inflation Reduction Act (IRA).

In the end the Biden administration succeeded through last minute bargaining with Sen. Manchin, advancing major energy funding estimated at $369 billion, or two-thirds what the BBB had proposed. Not the grandest of plans anymore, but the IRA still initiated a substantial set of government programs with funding to accelerate the energy transition.

Specifically, the IRA provided[4] the proverbial carrots rather than sticks, including tax credits, loans, loan guarantees and other funding as outlined below:   

• A tax credit for domestic clean energy technology manufacturing
• Tax incentives for renewable electricity generation
• Continued $7,500 credit for purchases of new clean vehicles, with some limiting restrictions not currently in place, such as:
  • EV batteries must contain a certain percentage of key minerals mined or refined in the US or a country that has a free trade agreement with the US. This percentage is 40% for 2024 and goes up to 80% in 2026.
  • The credit is reduced or eliminated if the EV is not assembled in North America or if the majority of the battery components are sourced outside of North America. The percentage reduction goes from 50% in 2024 to 100% in 2028.
• A consumer tax credit for the purchase of used clean vehicles of the lesser of $4,000 or 30% of the purchase cost
• A 10-year tax incentive for clean hydrogen production
• Enhanced tax credits for carbon capture and direct air capture
• The extension of tax credits for residential solar, wind and energy efficiency.
• A new Department of Energy (DOE) program to invest in projects that reduce emissions from energy-intensive industries.
• Significant funding for environmental justice initiatives
• Grants to facilitate the siting of interstate electricity transmission lines
• Loan and loan guarantees for clean technology initiatives available from the DOE
• Incentives, grants, loans, etc. for facilities, well operators and communities to reduce methane emissions, as well as a tax on methane emissions
• The requirement of an oil and gas lease sale of 60 million acres in the year prior to offshore wind lease auctions, for the next 10 years

This agenda, although more limited than previously proposed, is ambitious, and the incentives are expansive — albeit with a compromise requiring some domestic content provisions that could make receiving certain tax credits difficult to qualify for. As such, it’s also hard to judge how much those credits will cost and to what extent they will be effective in incentivizing the move to a lower-carbon economy.

Regulation and Markets

Some of the major roadblocks that the Biden administration has and will continue to encounter are on the regulatory front, while others relate to the market rules under which the U.S. energy sector operates. The federal government is hampered by federalism that gives primacy to federal regulatory agencies independent from presidential directives, such as the Federal Energy Regulatory Commission and state and local governments. In addition, the production and consumption of energy are primarily driven by the private sector in the United States. In oil and gas, the majority of production occurs on private lands, with the exception of Alaska and the Outer Continental Shelf, which have federal ownership of the land and resources. The federal government can influence the oil and gas industry through regulation, but it does not control or operate major energy-producing assets. In fact, much of the regulation of the oil/gas/coal/electricity sectors is in the province of states and sometimes localities rather than the federal government. This is especially true in the electricity sector where there is national, regional, state and local involvement in electricity infrastructure development and operation. There is not a national grid nor a national operator. State, local and regional electricity planning groups promulgate their own regulations for the siting and operation of power generation, transmission and distribution, as well as ratemaking. The federal government is also not directly involved in the investment and operating decisions of EV manufacturers or the vast majority of solar and wind producers. As such, it should be no surprise that Biden’s statements about the federal government as a driver of “assessment, disclosure, and mitigation of climate pollution and climate-related risks in every sector of our economy,” have not been fully translated into action.

Executive Action

The administration also hoped to move to vigorous climate action via executive branch regulations. However, in June 2022 the Supreme Court in West Virginia et al. v. Environmental Protection Agency et al. limited the ability of the Biden administration to enact sweeping climate regulations without specific legislation to back them up. The changes this brings to the administration’s regulatory plans are still being evaluated. Although the enactment of the IRA reduces the urgency of major regulatory action at the moment, such impediments are likely to become an issue for the advancement of new regulatory initiatives for any president going forward.

With regard to the federal government’s regulations with indirect implications for climate policy, take, for example, the Biden administration’s attempts to strengthen environmental regulations after they were relaxed by the Trump administration. This includes intentions to roll back Trump’s changes to the National Environmental Policy Act (NEPA), the Clean Water Act, the Endangered Species Act and protections for national monuments that would have reduced permitting challenges. In addition, the Biden administration has added new layers to the permitting process — environmental justice and a greater role for Native Americans. On top of this, he has an ambitious goal of preserving 30% of US land by 2030, which could restrict siting for wind, solar, transmission lines and new mines. These steps make permitting more difficult and the ambitious timetables outlined in the IRA less likely.

Expansion of Infrastructure and Resources

While the grand energy plan is predicated on timely negotiations, permitting and construction are not. Federal, state and local levels of government are all involved in permitting and construction. The leasing of private lands, as well as the construction of land-intensive wind and solar infrastructure and new transmission lines, is a very slow process. The regulatory redirection will slow down this already cumbersome and lengthy permitting process.

Take, for example, the oft-cited study by Princeton that created several net-zero scenarios.[5] One of the study’s renewable electricity scenarios would require wind and solar power to grow fourfold. High-voltage transmission capacity would need to expand by roughly 60% by 2030, and this assumes an average seven-year period to permit and build new transmission lines. In the meantime, a real-life project, Energy Gateway South, designed to move renewable electricity from Wyoming to other western states, took 15 years for full federal approval (approved in 2022) and is not expected to be in operation until the end of 2024, for a total of 17 years.

Opposition to new transmission lines is also not uncommon, adding to the already lengthy regulatory and construction process. In some cases, opposition can halt projects altogether, as evidenced by Maine voters vetoing a proposed transmission line bringing in hydro-electric power from Canada, primarily to serve states south of Maine. Additionally, over 300 wind farm proposals have been defeated since 2015 by landowners, local governments and some environmental organizations.[6] Per the Princeton scenario, wind and solar farms would impact 300,000 square kilometers of land, not including land to be traversed by new transmission lines. This means there are a lot of private land owners (and voters) to negotiate with, as well as a lot of communities. According to Jigar Shah, director of the Energy Department’s Loan Programs Office, “The only thing harder to build than nuclear in this country is transmission ... We're not going to 3 to 5x transmission in this country. I don't understand who in this room actually thinks that's going to happen by 2035. The lines that we're building right now were started 12 years ago.”[7]

Permitting, siting and construction are not the only challenges that renewable energy expansion in the US will need to face. Equally, if not more difficult, for Biden’s grand energy plan is access to critical minerals needed for EVs and supply chains. With a lack of progress in developing key minerals in the US, the US EV battery sector will continue to be largely dependent on other countries as it is today. This includes China, which dominates EV supply chains — from mining to processing to manufacturing key components of EV batteries (as well as parts for solar panels and wind turbines). Major battery “gigafactories” have been announced in the US but will still be dependent on imports of processed minerals and battery components for the foreseeable future. Development of renewable power, like wind and solar, will also increase demand for other resources that are currently mined outside of the US, making the country susceptible to geopolitical risk. Hence, at least the short-term impact of the IRA with regard to EV subsidies is limited. Not many electric cars will be able to demonstrate a reliance on (1) battery minerals from the US (not a major producer) or countries with a trade agreement with the US and (2) supply chains for battery components that require a major investment shift in manufacturing toward America.

To that point, the Biden administration recently announced a DOE effort focused on spurring the development of new mines in the US using the Defense Procurement Act. However, at the same time, Biden’s announcement notes that “Nothing in this determination shall be construed to waive or supersede the requirement for mines or other industrial facilities to comply with all federal and state permitting requirements and environmental health and safety laws.”[8] With global price projections for minerals over the next decade or so, the economics of a new mine, from construction to operation, are of less concern to companies than the extremely lengthy and high upfront costs of the permitting process in the US, with no guarantee that permits will actually be approved. In effect, since Biden came into office, the federal government has cancelled mining leases approved by the Trump administration for copper, nickel and cobalt near the boundary waters in Minnesota.[9] The Resolution Copper project, designed to produce 25% of US copper needs, filed for permitting in 2013. In 2021 the Biden administration withdrew the NEPA permits approved earlier in the year and requested more analysis.[10] Resolution Copper has spent over $2 billion to date on planning and permitting. Even with quick issuance of a new NEPA permit and federal approval, the project would require 10 years of construction before mining could commence.

In summary, one daunting headwind for this or a future administration hoping to speed decarbonization is the over-legalistic, costly and time-consuming regulatory system. Sen. Manchin supported the IRA with the understanding that Congress would pass legislation to speed up permitting. That too has run into opposition from numerous Democrats in Congress and environmental groups, making passage unlikely.[11] But as Ezra Klein recently acknowledged in a New York Times op-ed, “What we have is a government that is extremely good at making building difficult. … Democrats spend too much time and energy imagining the policies that a capable government could execute and not nearly enough time imagining how to make a government capable of executing them. It is not only markets that have failed.”[12]  

Beyond Politics and Policy

Beyond political polarization and muddling through regulatory oversight, Biden’s grand energy plan has also had to contend with market forces, which have particularly complicated his short-term goals for domestic economic performance. Presidents soon learn that to achieve their long-term goals, they have to live through the short-run challenges — the challenges that could shape the next electoral cycle for them and/or their party.

After all, oil and natural gas prices matter for the economy and inflation. Global economies drove a rebound in demand for oil, gas and coal faster than global and US producers and their supply chains could react after a brutal COVID-induced downturn in oil and gas use and prices. With over 280 million gasoline/diesel cars, light trucks and passenger vans on the road in the US — and EVs only in the low millions — high fuel prices are a serious issue for most Americans. And the president — irrespective of party — gets the blame, despite the fact that gas prices largely reflect global market forces outside presidential control. This association has become even more pronounced in voters’ minds as the shale revolution transformed the US into the No. 1 oil and natural gas producer in the world. The initial anti-oil rhetoric that Biden presented in his presidential campaign and early in his term as president, however ineffective, has added yet another reason for his opposition to blame him for high energy prices.

As gasoline prices skyrocketed to an average of $5 per gallon, Biden, aware of the blame being placed on his administration, 1) urged US oil producers to increase production quickly (which has led to inquiries about bringing shuttered refineries back on stream); 2) administered sales from the Strategic Petroleum Reserve; and 3) announced a schedule for leasing federal onshore and offshore acreage, albeit significantly cut back from what the Trump administration proposed.  

Supply chain issues and prices have also affected the prospects of a quick takeoff for “new energy.” The International Energy Agency and others have forecasted global growth in potential demand of metals, consistent with governments’ green ambitions, that could outstrip the expected minerals supply. This includes global demand for renewables and EV batteries, which is growing faster than minerals supply. All of this has led to inflation as commodity prices for minerals such as lithium, nickel and other key metals rise, as well as prices for steel, aluminum and plastics used in “new energy.” Meanwhile, shortages of semiconductors are slowing the production of EVs. In effect, some of the US and global new energy growth plans will not be met, and minerals prices can be expected to rise throughout this decade.

Lastly, as the Russian invasion of Ukraine has demonstrated, geopolitics and energy security are significant factors that can affect any president’s agenda, including Biden’s climate policy. With the West mounting sanctions against Russia, one of the world’s top energy producers and exporters, energy prices have reached new highs from an already high status quo. In response to the Russian invasion, the Biden administration has sought increased production from Saudi Arabia and other OPEC nations (and reluctantly, US oil companies) to put downward pressure on oil prices. The administration has also encouraged US LNG producers to increase production and deliveries of LNG to Europe to offset potential losses in natural gas supplies from Russia.

Complicating the solar build-out in the US is the dominance of China in the global solar panel supply chain and the recently passed Uyghur Forced Labor Prevention Act barring imports containing materials, such as polysilicon, produced in the Xinjiang province of China. There is also the realization that to avoid geopolitical risk — related particularly to China and Russia, but in general to any unfriendly or unstable country — one needs to redesign the current supply chains, infrastructure and trade in a way that is not always consistent with rapid decarbonization and a clean energy agenda.  

Conclusion

Biden’s grand energy plan, not surprisingly, ran into political, market and geopolitical headwinds, and decarbonization is likely to be slower and more incremental than initially envisioned in 2021. Decarbonization efforts, even with the enactment of the IRA, will continue to be tempered by a number of factors: the need for oil and natural gas development in the US; supply chain issues for solar panels, wind turbines and EV batteries; high commodity prices, including the high cost of lithium for EV batteries, a time-consuming and costly permitting process; and conflicting priorities, domestically and abroad. The future of any administration’s energy policy requires recognizing that they must survive the short run if they want to get to the long run. This means providing affordable and reliable energy — whether oil, natural gas or electricity — in the near term as well as in the next 10 to 30 years — even if this requires less aggressive timelines for decarbonization.

The trials and tribulations to get to the IRA’s significant but less aggressive energy and decarbonization policy should not be judged a failure by comparing it to an ideal grand plan. Grand plans for a rapid transformation of the US economy have and always will be whittled down by politics, the courts, markets and economics. It’s nearly impossible for any administration to have a single laser focus on one policy dimension — be it climate change or another issue, no matter how pressing. Instead, future administrations will need to take into account the multitude of issues related to energy use in the economy.

The trend of “red light, green deal, yellow light,” rather than rapid transit on a superhighway, will likely be the path of US energy policy for the foreseeable future.

Endnotes

 

 

This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s), and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.