Our Ideas

The Economics of Energy Solutions in Brief

Share

The world uses 25 times more energy today than in 1800, with fossil fuels occupying 87.15% of global primary energy consumption sources in 2017. At the same time, scientific studies have been growing increasingly alarming, all pointing to one conclusion: climate change has already exacted significant, measurable costs on societal and ecological well-being.

Burning fossil fuels is warming our planet, changing our climate, and posing a growing threat to the environment and economies around the world. But it has also been the foundation of the global economy, and over the last century has driven the most significant increase in technological innovation, prosperity, and human well-being in the history of the world.

The way we use energy won’t change unless the market incentives change. But in their present form, markets don’t adequately reward those who invest in clean energy, nor do they sufficiently penalize those who impose huge negative externalities on communities and the environment.

We need reform.

The New Center believes that there are two levers Washington could pull to reshape markets, incentivize clean energy investment, and create costs for climate-altering policies:

Carbon Tax and Dividend

Washington could implement a revenue-neutral carbon tax that would signal to polluters that their emissions come with a price tag. To achieve revenue neutrality, Congress could distribute a dividend to American households and communities dependent on fossil fuels to offset rising prices associated with the tax. Alternatively, Congress could employ a tax shift and reduce certain federal taxes (i.e. income taxes, payroll taxes, etc.).

Next Generation Clean Energy Tax Credits

Rather than prolonging or increasing tax credits that benefit only specific clean energy technologies like solar and wind, next-generation tax credits should be designed to favor promising, emerging technologies over maturing ones. By developing a system that awards tax credits based on whether they achieve a low-carbon power system, any clean energy technology that meets specific performance standards would be eligible to receive the credit.

“The Economics of Energy” is available for download here.