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America’s New Climate Economy: A Comprehensive Guide to the Economic Benefits of Climate Policy in the United States

by Devashree Saha and Joel Jaeger - July 2020

This working paper draws on the latest economic research to demonstrate how climate policy and investments in low-carbon infrastructure can reboot America’s economy and set it up for long-term success. On the other hand, delaying action on climate will further expose the United States to costly damages from climate impacts, air pollution, and public health crises.

The United States has made substantial progress towards a low-carbon economy over the past several years. Low-carbon technologies have become more efficient and affordable, and U.S. clean energy investment and deployment grew to new heights, creating millions of jobs. Whether this continues will depend on how the government responds to the COVID-19 crisis.

In addition, addressing climate change can allow the United States to secure a share in the booming domestic and global cleantech market by manufacturing and exporting low-carbon technologies. Moreover, it will help revitalize rural communities by diversifying rural economies and providing affordable clean energy.

Inequalities highlighted by the COVID-19 crisis make it clear that the United States must ensure that moving forward climate policies are fair and equitable by supporting fossil fuel workers and communities and ensuring the benefits of climate policies are shared by all.

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Key Findings

  • The costs of climate change will increase the longer we delay action. Without new policies, the United States will face economic damages equivalent to 1-3% of GDP per year by 2100. In a worst-case scenario, the damages could reach 3.7-10%.
  • Renewable energy and storage are becoming cost-competitive with fossil fuel generation, even without subsidies. About three-quarters of the U.S. coal fleet is now more expensive to operate than it would be to build and operate new solar and wind energy farms. Recent research also suggests that new natural gas plants could be a risky investment, given continuing improvements in the cost and performance of clean energy technologies.
  • Led by wind and solar, U.S. clean energy investment climbed to a record $78.3 billion in 2019 and, despite COVID-19, the long-term drivers for investment remain strong. The United States is second only to China in total clean energy investments.
  • The low-carbon economy is emerging as a major U.S. employer, though COVID-19 is threatening that progress. In the power sector, zero-emissions generation like solar and wind was responsible for about 544,000 jobs in 2019, more than twice as many as the 214,000 jobs in fossil fuel generation.
  • $1 million spent on clean energy in the United States generates more than twice as many jobs as $1 million spent on fossil fuels in the short- to medium-term. Other low-carbon sectors are job creators, too. For example, investments in public transit, walking, and cycling create more jobs than investments in highways. The most important thing will be to ensure the quality of clean energy jobs, as there are still important concerns about job quality, security, and pay.
  • The investments needed for low-carbon infrastructure are substantial, but manageable. A range of studies estimate that ambitious U.S. climate action will require additional energy investments equivalent to 2% of GDP at the most, though much of this will be offset by reduced fuel expenditures. Even at 2%, that is well within the historical range. Energy spending in the United States is at a low point now at around 6% of GDP, but has fluctuated to as high as 13%.
  • Emphasis on low-carbon technologies can help the United States to boost its manufacturing sector and secure a share in the booming domestic and global cleantech market. The U.S. advanced energy industry generated $238 billion in revenue in 2018, about 15% of the global total. That’s roughly equal to that of aerospace manufacturing and double that of the biotechnology industry.
  • Energy efficiency can reduce energy costs for rural households. Low-income, rural households face the highest energy burden in the country, spending 9% of household income on energy bills compared to the national average of 3.3%. Energy efficiency upgrades such as adding insulation and sealing air leaks can reduce rural energy burdens by as much as 25%, translating into more than $475 in annual savings for rural households.
  • Wind energy provides new streams of income for farming and ranching communities. Wind farms paid $761 million in state and local taxes in 2018, plus $289 million in lease payments to farmers and landowners who hosted wind turbines on their land.
  • 41 U.S. States and the District of Columbia reduced their energy-related CO2 emissions while increasing real GDP between 2005 and 2017. This includes states in all parts of the country, including Maryland and Maine in the Northeast, Alabama and Georgia in the South, Indiana and Ohio in the Midwest, and Alaska and Nevada in the West.

Executive Summary

Highlights

  • The COVID-19 crisis emerged at a time when the U.S. low-carbon transition was experiencing significant momentum. Low-carbon technologies have become more affordable compared to fossil fuels, and U.S. clean energy investment and deployment have reached new heights.
  • The impact of COVID-19 on the low-carbon transition has yet to be fully determined and will depend on how the federal government responds.
  • This paper draws on the latest economic and policy research, which demonstrates that strong climate action and investments in low-carbon infrastructure can be effective ways to stimulate jobs and investment in the wake of the COVID-19 pandemic and secure the economy’s long-term success.
  • In contrast, delaying action on climate change will further expose the United States to costly damages from climate impacts, air pollution, and other public health crises.
  • The United States can improve its manufacturing competitiveness by building a domestic market for low-carbon technologies and tapping into foreign markets. Moreover, climate action will help revitalize rural communities by diversifying their economies and providing affordable clean energy.
  • The United States can ensure that climate policies are fair and equitable by supporting fossil fuel workers and communities, providing quality jobs, and ensuring the benefits are shared by all.

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