Joe Biden’s German Green Deal

The Biden administration’s much-debated infrastructure program, the American Jobs Plan, consisting of about $2 trillion in federal spending spread over eight years, is like most large-scale programs: a patchwork of policies put together to please influential partisan constituencies. The plan is a mix of the good, the bad, and the ugly.

First, the good. The administration’s infrastructure plan includes provisions for increased spending for research and development in science and technology, following the 2019-2020 bipartisan Endless Frontier Act. Money for long-overdue repair and maintenance of existing roads and highways, and the elimination of toxic lead pipes, would also be well spent.

Now the bad. If we disregard these sensible public works projects, and also disregard social spending disguised as “infrastructure” like increased funding for home-based health care, the core of the Biden infrastructure plan is inspired by Germany’s recent and controversial Energiewende, or “energy transition”—a rapid, government-forced phaseout of fossil fuels in favor of renewable energy. Talk of a Green New Deal to the contrary, President Joe Biden’s model is German Chancellor Angela Merkel, not President Franklin Roosevelt.

Reportedly influenced by a technically ingenious but politically unrealistic scheme drawn up by Princeton academics, the Biden administration envisions ubiquitous electric car charging stations and the rapid electrification of everything from cars and trucks to kitchen cooktops, all powered by a rapid and massive government-backed expansion of solar and wind energy.

Unfortunately, solar and wind power require vast amounts of acreage to generate a small amount of energy, compared to the same amount generated by energy-dense sources like nuclear and fossil fuels. In the real world, windmills and solar panels must be widely dispersed over immense areas of land (and sea, in the case of offshore windmills and underwater turbines).

To connect the necessarily far-flung renewable energy installations, the administration supports the crash construction of a massive continental high-voltage electrical grid with vastly greater capacity. Proponents of this enormous and costly interregional grid have argued that it could have averted the blackouts caused by winter weather in Texas last February. But interregional grid connections could be easily improved at a fraction of the cost of the plan’s proposed interregional power lines, whose sole purpose is to bring power to cities from huge numbers of dispersed solar and wind power generators.

An expensive new continental grid is also unnecessary to ensure electrical reliability, which can be done by maximizing electricity generation from reliable, nonintermittent energy sources whose fuel can be stored on-site, like nuclear, natural gas, and in some cases, coal. Some or all of these energy sources will be needed anyway to back up solar and wind power, absent breakthroughs in battery technology that would allow storage of enormous amounts of electricity from wind and solar installations when the sun does not shine and the wind does not blow. How likely are such breakthroughs in battery tech? The environmentalist Michael Shellenberger notes that “for Texas to receive 100 percent of its electricity from renewables while electrifying all heating, transportation, and other services,” the Lone Star state’s electric grid “would require 7,000 gigawatts of battery capacity to store 13.6 terawatt-hours of electricity. That amount of battery power is 6 times more than all electrical generating capacity in the U.S. And the cost, just for Texas, would be $5.8 trillion, which is nearly three times the entire cost of Biden’s proposed infrastructure climate legislation.” Will Elon Musk come to the rescue? Shellenberger writes: “To meet the 13.6 terawatt-hours in the all-electric all-renewable [Texas] scenario described above would require 388 years of Nevada Gigafactory output.”

It is no surprise that the losers from the Biden energy plan would be the groups least likely to vote for Democrats. The high-voltage grid megaproject would require government confiscation of property with the use of eminent domain on a colossal scale. The costs would fall heavily on rural Americans in “flyover country,” whose farms and ranches and homes would be sacrificed to high-voltage power lines and sprawling, subsidy-sucking wind and solar installations.

The costs of higher electricity prices would also fall disproportionately on working class Americans of all backgrounds, as well as on productive industries. Germany, the Biden administration’s model, has succeeded in dramatically increasing the renewable energy share of its power supply—at great cost to both German citizens and German businesses. According to Clean Energy Wire, in 2019 the monthly electricity bill for an average three-person household in Germany was 33% higher, in inflation-adjusted terms, than it had been for the same amount of annual energy consumption in 1998. Thanks to the Energiewende, both German consumers and German industry pay the highest electricity prices in Europe.

By contrast, the immaterial industries on whose campaign contributions the Democratic Party depends—Wall Street, Silicon Valley, Hollywood, consulting firms, and the universities—will take less of a hit from higher energy costs than physical-world businesses, just as the for-profit entities among them are likely to pay less than the full rate in higher corporate taxes.

It gets even better for rich green donors. Green crony capitalism, like other forms of crony capitalism, privatizes the benefits of an activity while socializing the costs. Step 1: The government gives you, the investor, a tax credit to invest in a solar or wind installation that would not be competitive without government subsidy. Step 2: The government imposes a “renewable portfolio standard” (RPS) on public utilities to compel them to accept ever-rising amounts of energy—regardless of price—from the renewable energy installation that you and your fellow investors own. In this way, the government deliberately redistributes money upward from consumers and businesses to you, the investor, forever. According to University of Chicago economists Michael Greenstone and Ishan Nath, renewable portfolio standards mandating that utilities buy a certain share of their power from politically favored renewable sources tend to raise consumer electricity prices seven years after they are enacted by an average of 11%.

So much for Biden’s new national energy infrastructure proposal, the bad aspect of his plan. Now for the ugly.

A basic rule of public finance is that infrastructure projects should be financed by borrowing, not funded up front by taxation. Instead, the administration proposes to pay for much (not all) of the “infrastructure bill”—conventional infrastructure, the Green New Deal, miscellaneous social spending, mass transit, elder care, the works—by raising taxes on the rich and on corporations.

While raising more revenue from America’s undertaxed rich is a good idea, it must also be said that the corporate income tax does not raise much federal revenue—only about 7% of the total, a little less than the average in other industrial countries. Moreover, corporate taxation falls heavily on firms that undertake manufacturing in the United States—the very firms that the Biden administration, in its plans for industrial policy, says it wants to help. American software companies can continue to play tax-avoidance games by pretending that their profits are realized in offshore tax havens, but American manufacturers cannot hide their factories in the Cayman Islands, Panama, Ireland.

Paying for an ambitious spending program by taxing corporations and the rich may please both Democratic deficit hawks and anti-corporate progressives. But however popular it may be, paying for infrastructure mostly without borrowing makes no economic sense. The Biden administration’s scheme to pay for America’s German-inspired energy transition is as ill-conceived as the plan itself.

In response to criticisms like these, defenders of the Biden energy plan might argue that higher electricity bills and a certain amount of green crony capitalist profiteering are prices worth paying when the alternative is the end of civilization as we know it.

But does climate change really threaten to destroy civilization or cause the extinction of the human race? In his forthcoming book, Unsettled: What Climate Science Tells Us, What It Doesn’t, and Why It Matters, Dr. Steven Koonin, undersecretary for science in the Obama administration’s Department of Energy, writes that “public discussions of climate and energy became increasingly distant from the science. Phrases like ‘climate emergency,’ ‘climate crisis,’ and ‘climate disaster’ are now routinely bandied about to support sweeping policy proposals to ‘fight climate change’ with government interventions and subsidies” like those in the Biden plan.

In any case, the American Energiewende is doomed to remain a fantasy within the timetable proposed by the White House. Biden has declared that all U.S. electricity must be from carbon neutral sources by 2035, 14 years from now. According to the U.S. Energy Information Administration, renewable energy in 2019, before the pandemic-induced economic crisis, made up only 11% of all U.S. primary energy—with wind only 2.64% of primary energy and solar power only 0.99%. Renewables make up a higher share of electricity than of primary energy generation, estimated by the EIA to be 21% in 2020. But the EIA believes that renewables from all sources, including hydro and biomass, will be only 42% in 2050, 15 years after Biden’s unrealistic deadline.

Absent dictatorial mobilization of the U.S. economy for the next three decades, a Green New Deal is not going to happen in any incarnation—certainly not with the Biden plan’s relatively limited spending, spread over eight years and accompanied by tax credits designed to “crowd in” voluntary private sector investment. Even if the American carbon copy of Germany’s decarbonizing energy transition were to succeed, the impact on the earth’s climate would be small: The U.S. is responsible for only 15% of global greenhouse gas emissions.

For its part, the Republican Party has lagged in putting forth infrastructure plans of its own, though it has had plenty of time to do so. Donald Trump made rebuilding America’s infrastructure a major theme of his 2016 presidential campaign, but the only major achievement of Republicans in Congress during his term was to lower individual and corporate income taxes further to benefit their campaign contributors, many of whom returned the favor by contributing dollars and votes to the Democrats in 2020.

Now, however, in response to the Biden plan, a group of Senate Republicans—Pat Toomey of Pennsylvania, Roger Wicker of Mississippi, John Barrasso of Wyoming, and Mike Crapo of Idaho—have proposed a five-year, $568 billion alternative to Biden’s eight-year $2.25 trillion plan.

This smaller Senate Republican plan is a mix of the good, the good, and the ugly. Good: The plan rejects Biden’s attempt to redefine “infrastructure” to mean public spending of any kind, limiting the term to roads and bridges, public transit systems, rail, drinking water and wastewater infrastructure, ports and inland waterways, airports, safety, broadband infrastructure, and water storage. Also good: The money would be spent through existing federal agencies, which is what they’re for! As an example, $299 billion for highways would be administered by the Federal Highway Administration, while $44 billion for airports would be overseen by the Federal Aviation Administration.

Alas, the ugly in the Senate Republican plan is the same as that in the Biden plan: an insistence on funding infrastructure investments immediately with “pay-for” tax increases or spending cuts, rather than over time by borrowing. Most state and local governments have separate capital budgets not subject to state balanced-budget requirements, in order to finance the construction of public schools, wastewater facilities, roads, and other public works. Proposals for the federal government to adopt a capital budget, or alternately an infrastructure bank, have always failed in the past.

Unfortunately, the Biden administration’s attempt to rebrand ordinary social spending as “infrastructure” only strengthens those who argue that Congress is too irresponsible to properly use a federal capital budget or infrastructure fund, and will instead misuse it to pay for anything and everything else. In the words of Sen. Kirsten Gillibrand (D-N.Y.): “Paid leave is infrastructure. Child care is infrastructure. Caregiving is infrastructure.”

In one promising development, Sen. Joe Manchin (D-W.Va.), who has become a swing vote in the 50-50 Senate, has said that he would support bipartisan passage of a smaller infrastructure bill—but alas, only on the condition that it is paid for with taxes or spending cuts, not debt.

Perhaps the worthwhile parts of the American Jobs Plan that deal with infrastructure narrowly defined, minus the ill-conceived American Energiewende, could be pulled out and combined with the Senate Republican proposal, with Democrats and Republicans haggling over the total price tag. In a partisan and polarized age, here is a real opportunity for bipartisan compromise in order to build back better.