Crossing The Emissions Gap Between Inflation Reduction Act And 2030 NDC Is Worth 4 Million Jobs
- Jan 9, 2023 10:49 pm GMT
The United States has gone all-in on climate and clean energy funding. The Inflation Reduction Act’s (IRA) $370 billion in emissions reduction funding, the CHIPS and Science Act’s $70 billion in zero-carbon technology research funding, and the Infrastructure Investment and Jobs Act’s (IIJA) $95 billion in grid and electric vehicle (EV) charging funding are the largest-ever investment in nationwide decarbonization.
Independent analyses agree that all three could cut U.S. emissions roughly 40% below 2005 levels by 2030. But that’s still not enough to hit our Nationally Determined Contribution (NDC) to the Paris Agreement of 50%-52% below 2005 levels by 2030, the pathway to a safe climate future.
Hitting the 2030 NDC requires significant additional policy within the next few years, which should prioritize the electricity sector since it has multiple technology options and is the fastest to decarbonize. Zero-carbon power can meet growing demand as the buildings, industry, and transportation sectors replace fossil fuels with electricity.
Accelerating ambition is an economic catalyst thanks to fast-falling clean energy costs. Energy Policy Simulator modeling shows crossing the emissions gap between IRA and NDC would create 2.7 million jobs and increase GDP 1.7% in 2030, in addition to 1.3 million new jobs and 0.77% higher GDP expected from IRA provisions alone.
This is already happening: Corporations have announced tens of billions in clean energy investments across the U.S. since the IRA’s passage.
Designing and implementing additional climate policies with a split Congress and divided statehouses may seem difficult, but it’s possible. And it’s worth the effort – beyond billions in economic upside, it would prevent $1.7 trillion in cumulative damages from climate change between 2023 and 2030.
The stock turnover problem with hitting the U.S. NDC
Nearly 90% of total U.S. emissions come from four economic sectors: buildings, electricity, industry, and transportation. While we must cut emissions in every sector to hit the 2030 NDC, the pathway to decarbonizing each is different due to the capital stock turnover problem and availability of clean technologies.
Stock turnover is the speed that equipment like vehicles or appliances are replaced every year. Since most buildings, industrial, and transportation equipment remains in service for 10 to 30 years, every new fossil fuel powered piece of equipment sold today locks in emissions for decades.
Electrification is the most efficient way to cut these emissions, but climate policies targeting those sectors focus on increasing clean technology sales over time, which limits their emissions reductions pace.
But the stock turnover dynamic is far less prevalent in the electricity sector. Even though it is composed of power plants designed to last for decades, new generation sources come online every year. Older fossil-fueled equipment can be displaced before scheduled retirement because IRA electricity sector incentives make generating clean power cheaper than both natural gas and coal plants in most parts of the country.
This means the electricity sector can cut emissions fastest of the four major sectors, providing increasingly clean and cheap electricity to power fast-growing demand from electrified end uses like EVs, electric appliances, and electrified industrial processes.
Energy Innovation Policy and Technology LLC® modeling outlines a politically viable pathway to close the emissions gap between IRA and NDC using existing technologies and policies. Federal policy is a priority because it can scale emissions reductions fastest, but state and local policies are also important as they will ultimately determine IRA implementation success.
Policies to plug into an 80% clean electricity sector
In the electricity sector, the third largest source of U.S. emissions, fast-falling clean energy prices, low natural gas prices, and pollution standards have cut emissions 24% in the past decade. IRA provisions including tax credits, new funding programs, and low-cost loans could push the power sector to 80% clean and eliminate some of today’s unabated coal emissions, though this isn’t guaranteed.
Without additional policies, the electricity sector is unlikely to decarbonize on pace to hit the NDC. At the federal level the U.S. Environmental Protection Agency (EPA) can develop stringent pollution standards for new and existing power plants, Congress could pass a clean electricity standard, and the Federal Energy Regulatory Commission and U.S. Department of Energy (DOE) could help develop transmission lines and overcome grid connection barriers facing renewables.
State-level policy is also critical to electricity sector decarbonization, especially without federal action. Large-emitting states must strengthen or adopt clean electricity standards, and state utility regulators may need to spur their utilities to tap hundreds of billions in funding and loan guarantees to replace existing coal with new clean energy generation. While 16 states have legislation committing to 100% clean electricity by 2050 or sooner, and multiple utilities have committed to clean energy, neither is sufficient to hit the NDC. Federal and state policies should collectively push the U.S. to 80% clean electricity and zero unabated coal by 2030.
How to manufacture a clean industrial sector
The industry sector will be the nation’s largest emitter by 2030, making decarbonization key to hitting the NDC. Industrial emissions come from burning fuel for energy, primarily to provide heat, and process emissions from activities like breaking down limestone to make cement or methane leakage from oil and gas operations. The IRA contains provisions targeting industrial emissions, but will only reduce sectoral emissions around 5% by 2030.
Stronger federal energy efficiency standards set by DOE are a good starting point. More stringent standards reduce energy demand, cutting transition costs and pushing industry toward electrification. IRA green bank provisions could finance industrial heat pumps to electrify low-temperature heating demand, and EPA could set technology-neutral industrial emissions standards with a range of compliance options. The federal government and state governments could also enact stronger standards on high global warming potential refrigerants, fugitive methane emissions, and nitrous dioxide emissions.
Putting transportation sector decarbonization in the fast lane
The transportation sector, which currently contributes the most emissions of any U.S. sector, has the clearest path to decarbonize – EVs. Hitting net-zero emissions by 2050, a goal of the U.S. NDC, requires all new passenger vehicles, along with medium- and heavy-duty vehicles, be zero-emission and powered by zero-carbon sources no later than 2035 and 2045, respectively.
IRA provisions encourage clean vehicles, a nationwide EV charging network, and a domestic EV and battery manufacturing industry. Because most passenger EVs are already cheaper to drive than internal combustion engines, the IRA could tip the scales on consumer EV adoption. IRA provisions to fund clean charging infrastructure could dramatically expand charging options, and incentives targeting the domestic EV auto industry could help automakers profit from this shift.
But transportation sector IRA provisions won’t win the race. EPA and the National Highway Traffic Safety Administration can set stringent tailpipe emission and fuel economy standards aiming for 100% ZEV passenger vehicles sales by 2035, and 100% ZEV sales for all other on-road vehicles by 2045. These market guardrails would incentivize cleaner vehicles and ensure internal combustion engines are as clean as possible. State governments can follow California’s lead by adopting its Advanced Clean Cars II and Advanced Clean Trucks rules under the Clean Air Act’s Section 177.
Federal agencies, along with state and local governments, can tap IRA provisions and $7.5 billion in dedicated charger funding from IIJA to deploy charging infrastructure. State regulators can also encourage utilities to invest in chargers and adopt aggressive EV adoption forecasts.
Cutting building sector emissions, brick by brick
While the buildings sector only accounts for 10% of U.S. emissions, it is a significant source of electricity demand, giving it an outsized indirect emissions impact. Decarbonizing buildings may be the trickiest part of the NDC puzzle given the multiple ways building energy is regulated, as well as the need to decarbonize both new and existing buildings.
Building sector IRA provisions include multiple funds to cut building emissions, but would likely only reduce those emissions 5%-6% due to slow stock turnover and limited incentives. Hitting the NDC will require concerted federal, state, and local action and must ensure all new building equipment is fully electric by 2035.
Federal action is the foundation of a decarbonized building sector. DOE, which oversees appliance energy efficiency standards, can ensure existing standards keep pace with technology. EPA, which oversees the ENERGY STAR label with DOE, can ensure the label transitions appliances by adopting standards aligned with net-zero goals through all-electric appliances. It can also establish new appliance pollution standards, a novel approach but one it already has the statutory authority to do.
But state and local governments can build upon that federal foundation for sectoral decarbonization. State and local governments control building code adoption and enforcement, and can tap IRA funding to adopt new codes decarbonizing all new residential, multifamily, and commercial buildings. State legislatures can also require appliances to meet stringent efficiency or all-electric standards, and can incentivize consumer adoption of these technologies.
A new era of prosperity for accelerated climate ambition
While 2022 was the most important year ever for U.S. climate policy, the IRA’s ultimate success and reaching the 2030 NDC depends on federal and state implementation, along with renewed policy ambition.
The Biden Administration has roughly a year to release regulations governing power, transportation, industry, and building sector emissions to ensure they are codified by the end of 2024. Federal agencies must provide clear guidance on IRA tax incentives and provisions to help businesses and consumers tap hundreds of billions in clean energy funding, and apply these new funds to meet new federal targets. State and local governments must seize the moment with new standards to ensure these billions in new funds flow to their communities, and new incentives to help cut consumer costs.
America has everything to gain from accelerated policy ambition: a safer climate, less dependence on foreign countries, more resilient communities, cleaner air, and a supercharged economy.
Crossing the emissions gap from IRA to NDC could propel the U.S. into a new era of prosperity – if our federal, state, and local governments meet the moment.
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