A BloombergNEF (BNEF) report shows that although Biden’s Inflation Reduction Act (IRA) helps tremendously in the U.S. transition to a net-zero economy, additional mandates and regulations will be needed to reach the ambitious climate goal.
The IRA is projected to result in a 40% drop in energy-related emissions by 2035 and a 55% drop by 2050. BNEF details how additional emission reductions can be made possible by using the most low-cost available technologies. Its "Net Zero Scenario" includes cleaning up the power sector, continuing widespread electrification, and implementing clearer and stricter decarbonization policies. Further, the report expresses that the energy transition presents a $30 trillion investment opportunity for the U.S. energy system and calls for acceleration of investment into the supply and demand sides of low-carbon technologies.
Rapid decarbonization in the power industry is needed as the sector is one of the largest sources of U.S. carbon emissions. The most cost-effective way to speed up the transition to clean power sources is through scaling up investment in wind and solar along with low-carbon dispatchable electricity. While coal generation is set to shut down during the 2030s, natural gas is expected to remain into 2050. The report emphasized the need for carbon capture tax credits to be extended through 2050 in order to offset gas generation.
“As cleaner power becomes key to decarbonizing everything else, the U.S. must address its love affair with gas,” said Tara Narayanan, BloombergNEF’s Senior Associate for US Power Markets. “Carbon capture could be a solution to emissions from natural gas if the subsidies are extended rather than being phased out just when the technology starts to become competitive”.
Modeled IRA incentives alone are not expected to completely achieve net zero by 2050, which suggests that clearer and stricter decarbonization policies need to be implemented.
Tax credits and direct subsidies certainly help – tax credits for electric vehicles and carbon capture can lower emissions by 9% by 2050. But, the IRA’s push for clean hydrogen production to reduce industrial emissions isn’t as effective due to its high installation and operating costs. Industrial decarbonization is expected to rely more on carbon capture and electrification.
The BNEF report’s Net Zero Scenario requires accelerated investment in the energy transition, and half of this needed funding is driven by consumer purchases of EVs. Investment in power grids is also an apparent key player in emission reductions. The IRA’s overall influence and long-term success is therefore largely reliant on consumers and private sector investment.
“The IRA is a multibillion-dollar down-payment on decarbonization, but it, and other policies, will need to stimulate trillions in investment to reach net zero,” said Derrick Flakoll, policy associate for North America at BloombergNEF.
