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IRA Will Get US Halfway to Paris Goals; But We Need Mandates to Reach the Finish Line

Keeping the planet below 1.5ºC will require rapid scaling of current technologies and deployment of emergent climate solutions — as well as innovative, binding policy interventions.

US emissions have gradually declined over the last decades — thanks to the combined impacts of long-term trends in population, economic growth, energy markets, energy efficiency, and the carbon intensity of fuel choices; but the oil lobby is stronger than ever and shows no signs of backing down.

On the bright side, the Inflation Reduction Act — which turned one on Aug. 16 — has made decarbonization technologies cheaper through a bevy of financial stimuli; but there are limits to what even the most generous incentives can achieve. A recent BloombergNEF report highlights how the IRA is likely to impact the US’ energy transition, considering three scenarios:

  • Economic transition scenario (ETS): A baseline assessment only factoring in cost-based technology changes (not policy). If the economy is the main driver in decarbonization and no other major policy interventions are implemented, we can expect a third of 2021 emissions by 2035, and half of 2021 emissions by 2050. Under this scenario, the US will not meet its climate goals.

  • Policy scenario: This scenario factors in the impact of the IRA on the US energy transition. There are similar emissions reductions by 2035 as the ETS. By 2050, the IRA will have helped the US achieve 54 percent emissions reductions over the 2021 baseline — still not rapid or deep enough to meet the US’ Paris Agreement commitments.

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    Net-zero scenario: In a Paris-aligned net-zero scenario, by 2035 US emissions are two percent lower than the US’ Nationally Determined Contributions. This scenario requires hard carbon caps in all sectors, as well as a $29.6 trillion investment in the nation’s energy system now through 2050.

The report concludes that “[for] ambitious federal policies to translate to a sustained diversification away from fossil fuels, the hard work of building supportive physical infrastructure, streamlining permitting, and regulating reluctant parts of the economy remains. Without a concerted push on these fronts, the US is unlikely to hit the targets that it has committed to under the Paris Agreement.”

The report makes market assumptions to be expected in a warming world with a growing population — such as increased A/C demand, increased demand for miles traveled, decreased car ownership, increased GDP and its subsequent effects, increased demand for certain metals, and more. For the policy and net-zero scenarios, the report assumes that current incentives in the IRA will continue into 2050.

As Tara Narayanan, a senior analyst at BloombergNEF and lead author on the report, told Sustainable Brands®: “These incentives actually do get us pretty far. It’s just that it’s not far enough … Voluntary incentives can only take us so far. The IRA really focuses on tax credits, which are essentially voluntary incentives; to ensure we actually meet our decarbonization goals, we need mandates.”

Many key sectors — particularly, energy and heavy industry — are reluctant to change; and tax credits aren’t likely to get them across the net-zero finish line. However, Narayanan explained, the IRA does lay some pretty hefty incentives for decarbonization solutions tailored for the inertial energy sector — such as carbon capture and storage (CCS) and hydrogen. Despite massive investments — the Department of Energy, for example, just invested $1.2 billion in two direct-air-capture projects — hydrogen and CCS are likely to only play a marginal role and not make major cross-sectoral inroads without additional interventions.

“The things that can be accomplished with incentives are really around sectors where you already see some transition happening,” Narayanan said. “In sectors where the initial momentum [for decarbonization] has already begun, you’ll see a lot more adoption from the sector.”

Transportation, for example, is transitioning rapidly — so, incentives will go a long way in fueling further adoption. They won’t, however, be as effective in building new industries or demand for low-carbon technologies that aren’t yet financially viable — for example, in heavy industries such as cement and steel.

To compel these to decarbonize, the world needs to pick up some sticks. Policy recommendations from the report include:

  • “Sticks” complementing IRA “carrots”

  • Flexible funding leveraged wisely to advance decarbonization goals

  • Buildout of energy infrastructure

  • Facilitating cross-sectoral adoption of carbon-capture technologies

Other sticks, Narayanan said, should include harmonized emissions standards, phase-out of internal combustion engines, and efficiency mandates. These policy structures, she said, either force companies to turn to existing technologies or develop new ones.

Other mechanisms, predominantly permitting reform and mandates, will play a key role in reducing the non-economic barriers to decarbonization: It doesn’t matter how cheap a solar project becomes if it can’t be easily integrated into the grid — permitting and red tape are apparently preventing 10,000+ energy projects from connecting to the grid. Put together, these proposed projects — if completed — would produce 1,500 times the US’ current energy production every year.

Key to decarbonization will be making it easier for pipelines and electric wires to quickly and safely connect to national infrastructure. Right now, that’s an impossible ask; this will require agencies to be well staffed and policy to be well defined and executed, Narayanan said.

The report doesn’t take into account currently underdeveloped technologies such as fusion. In the meantime, however, carbon capture will likely play an outsized role in removing emissions from laggard industries, as well as legacy emissions (Even if we stop emitting carbon now, we’ll still need to drawdown carbon from the atmosphere to maintain safe global temperatures).

Keeping the planet below 1.5ºC will require rapid scaling of current technologies and development of new climate solutions that either don’t yet exist or aren’t yet commercially available — as well as sweeping and innovative policy interventions. All of these must be adopted as quickly and universally as possible.

“It’s time for mandates in the form of emissions reduction, potentially phasing out fossil fuel equipment,” Narayanan concluded, pointing to hard-to-abate sectors such as heavy industry. “It’s also time to build infrastructure and ensure that the process of infrastructure building does not get in the way of supply-and-demand typologies.”

And with both the climate crisis and the 2024 election looming, there’s no time like the present.