The U.S. Budget Reconciliation and Its Implications for Climate Tech

The U.S. Budget Reconciliation and Its Implications for Climate Change

by Justin Field

As many of you know, this week, the U.S. House cleared a $3.5 trillion budget resolution unlocking "reconciliation" rules that will allow Democrats to pass a major spending package on a party-line vote in the Senate. This package is expected to focus on a range of domestic priorities, including health care, education and workforce development, social programs, and climate. Viewed in conjunction with earlier Senate passage of the $100 billion Endless Frontier Act and the $550 billion Bipartisan Infrastructure Investment and Jobs Act, two other bills with tens of billions of dollars in climate-related investments, this Congress is clearly undertaking the most substantial effort to address the climate crisis in our nation's history.

Senate Majority Leader Chuck Schumer (D-NY), the driving force behind these efforts, recently released an analysis on the impact of programs they plan to include in the $3.5 Trillion Reconciliation Package and the Bipartisan Infrastructure Package. According to the analysis, the proposed programs would reduce U.S. carbon emissions to "approximately 45% beneath 2005 levels by 2030." If successful, these efforts will not only substantially reduce the U.S. carbon footprint but could dramatically accelerate the global energy transition and give us the best opportunity we may ever have to avoid the worst consequences of climate change. 

These bills are a concerted effort to support innovation in a range of critical climate-related technologies, including those focused on clean energy sources and storage, transportation and mobility, carbon capture and utilization, water and agriculture, and smart city and infrastructure. Fortunately, these efforts are coming at a historical and serendipitous moment for climate action. Clean energy sources utilizing existing technologies are now becoming price competitive with fossil fuels. In addition, venture capitalists just deployed a record $12.7 billion into a new generation of climate and sustainability technology startups in 2020 and are on track to smash that record this year.

The pace at which we innovate in these areas will dictate much of our success. Innovation brings more powerful and efficient technologies online and substantially reduces the cost of existing technologies, making their deployment more accessible to families, businesses, and governments. 

To put this in perspective, let's look at the adoption rates of the U.S. home computer. Access to home computer technology rapidly expanded partly due to the pace of innovation in the power of semiconductors (think Moore's Law). This innovation sharply drove down the cost of computing power, making a personal device less expensive. In 1984, 8.2% of U.S. households had a home computer. That number rose to 50% in 2000 and 90% in 2016. Today, home computers and laptops have become ubiquitous, and smartphones have far outpaced the power of the early 80s computers. Replicating this pace of technology adoption for climate will not be easy, but between private sector trends and legislative momentum, our best chance is now.

The Infrastructure Investment and Jobs Act has several programs that will provide grants to state and local governments and utilities for the acquisition of new technologies. These new grant programs will also support research and technology commercialization in private companies, domestic climate manufacturing, and new offices meant to increase government domain expertise in emerging technology trends. While a draft of the Democratic reconciliation package has yet to be released, we hear that there will be many climate programs, including a Clean Electricity Payment Program, a number of grants, research support, and consumer incentive programs, and a significant climate tax package that should include a direct pay mechanism to open eligibility to startups and a new energy storage credit.

There are plenty of uncertainties as to whether innovative startups will actively participate as the mechanics of a lot of these programs will be decided through the regulatory process, and state and local procurement processes have historically been difficult for startups to access. Details in these programs matter a great deal for startups, as we all so painfully remember from the PPP debates last year, so we will work through the process to identify and target any issues that may unintentionally exclude startups and growth companies.

The startup ecosystem has been at the forefront of launching new industries in the United States in the modern economy. Discoveries and innovations include semiconductors and the home computer, biotechnology, the internet, and mRNA technology, to name a few. If we get this right, we'll look back on 2021 as the year things finally came together for the climate. But first, we need to get it right.

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