Week 13

International Climate Change Agreement

In Week 13, we will continue our discussion on the Climate Change Agreement. We will then have the Midterm Exam II on Friday, November 21.

✍️ Classwork

• Classwork 12: Internationl Climate Agreements
  📄 View Classwork

• Classwork 13: Midterm Exam 2 Self-Test & Practice Review
  📄 View Classwork

📚 Recommended Reading

• Clausing, Kimberly A., and Catherine Wolfram. 2023. “Carbon Border Adjustments, Climate Clubs, and Subsidy Races When Climate Policies Vary”, Journal of Economic Perspectives 37 (3): 137–62.

🇺🇸 Inflation Reduction Act (IRA): Summary

Before the IRA, roughly 85% of U.S. federal energy subsidies went to fossil fuels and nuclear power.
The 2022 IRA dramatically shifts this balance: by 2032, support for renewables, EVs, and storage is expected to total $800 billion–$1 trillion (about $100 billion per year).

1. Clean Energy Tax Incentives

• Expands long-term tax credits for wind, solar, geothermal, and hydropower.

• Strengthens the Production (PTC) and Investment (ITC) tax credits, with extra benefits for projects meeting labor standards.

• Adds new credits to keep existing nuclear plants online.

• PTC — Production Tax Credit
  A federal tax credit that rewards each unit of electricity generated from eligible renewable sources (e.g., wind, geothermal, biomass).

  • Paid per kWh produced
    
  • Strong incentive for high-output renewable projects

• ITC — Investment Tax Credit
  A federal tax credit that covers a percentage of the upfront cost of installing renewable energy systems (e.g., solar, fuel cells, small wind).

  • Reduces capital cost directly
    
  • Particularly important for solar power, which relies heavily on ITC support

2. Electric Vehicle (EV) Support

• Offers up to $7,500 for new EV purchases and $4,000 for used EVs.
• Provides grants and loans to expand domestic EV and battery manufacturing.

3. Energy Efficiency & Electrification

• Rebates and credits for home improvements such as heat pumps, insulation, and other efficiency upgrades.
• Incentives for businesses to adopt energy-efficient technologies.

4. Clean Energy Manufacturing

• Major investments in U.S. production of solar panels, wind turbines, batteries, and other clean-tech components.
• Creates an Advanced Manufacturing Credit for producing key inputs domestically.

5. Carbon Capture, Utilization & Storage (CCUS)

• Increases tax credits for carbon capture projects, making CO₂ capture and storage more financially viable.

6. Climate Resilience & Conservation

• Funds forest restoration, coastal protection, sustainable agriculture, and other programs to strengthen natural carbon sinks.
• Includes fees and grants aimed at reducing methane emissions from oil and gas systems.

7. Environmental Justice Investments

• Directs funding to low-income and disadvantaged communities to support an equitable clean-energy transition.

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Expected Impact

Together, these measures aim to reduce U.S. greenhouse gas emissions to 40% below 2005 levels by 2030 and to expand domestic clean-energy industries.
By 2024, the IRA had already attracted over $240 billion in private clean-energy investments—roughly $5 in private money for every $1 of federal tax credit.

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Implementation Challenges

• Free-riding: Some households or firms may claim subsidies for upgrades they would have adopted anyway.
• Rebound effects: Lower energy costs (e.g., from EVs or home weatherization) may lead to more driving or higher electricity use, partially offsetting emissions reductions.
  • Evidence suggests rebound effects around 10%.

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Interaction with Fossil Fuel Externalities

• An IMF study finds global fossil-fuel externalities total $5.2 trillion annually, far exceeding direct fossil subsidies.
• Full internalization of damages would require doubling the market price of coal power, natural-gas electricity, gasoline, and diesel in the U.S.
• Federal regulations have tightened and loosened repeatedly across administrations (Obama → Trump → Biden), especially for coal plants, mercury rules, and methane leakage.

If current EPA rules survive beyond 2024: - Renewable power will compete on a more level playing field. - Fossil-fuel externalities will be partially internalized, especially for coal and natural gas.

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Broader Clean-Energy Promotion

States continue to complement federal policy with:

• Renewable Portfolio Standards (RPS)
  

• Cap-and-trade systems (e.g., RGGI)
  

• Offshore wind investment via ORECs
  

• On-Bill Recovery and PACE financing tools

• RGGI (Regional Greenhouse Gas Initiative):
  A multi-state cap-and-trade system for CO₂ emissions in the Northeastern U.S.

• ORECs (Ocean Renewable Energy Credits):
  Credits states require utilities to buy to finance offshore wind development.

• PACE (Property Assessed Clean Energy):
  A financing tool allowing homeowners to fund energy-efficiency or solar improvements via their property tax bill.

These policies help accelerate clean-energy deployment and support state-level goals such as 100% clean electricity by 2040–2050.

💬 Discussion

Welcome to our Week 13 Discussion Board! 👋

This space is designed for you to engage with your classmates about the material covered in Week 13.

Whether you are looking to delve deeper into the content, share insights, or have questions about the content, this is the perfect place for you.

If you have any specific questions for Byeong-Hak (@bcecon) or peer classmate (@GitHub-Username) regarding the Week 13 materials or need clarification on any points, don’t hesitate to ask here.

Let’s collaborate and learn from each other!