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The U.S. Inflation Reduction Act is bigger and more far-reaching than you think

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The U.S. Inflation Reduction Act is bigger and more far-reaching than you think

In the most extensive analysis to date, researchers ran nine different models to estimate the IRA’s impacts on the U.S. energy system and economy.
July 11, 2023

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Landmark climate legislation passed in the United States in 2022 could nearly halve the U.S. economy’s overall emissions compared to 2005 levels by 2035, according to a new analysis. But on its own, it still won’t be sufficient to meet the country’s pledges under the Paris Agreement.

The Inflation Reduction Act (IRA) is possibly the most significant piece of U.S. climate legislation yet. Its provisions include tax credits for clean energy, energy storage, and carbon capture; measures to promote energy efficiency, reduce methane emissions, develop domestic supply chains, and ensure environmental justice; and many others.

In fact, the IRA is so big and complex that its effects on the energy system and economy can’t simply be totted up but instead must be analyzed using powerful computer models. In the new study, the most extensive effort yet to get a handle on the legislation’s impact, researchers used nine different models to estimate the likely impacts of the IRA’s most important provisions.

The models varied in their scope (six encompassed the entire U.S. energy system while the remaining three only included the electricity sector) and level of detail. Some of the models were used to inform discussion prior to the IRA’s passage, and others were added new for this analysis. The researchers analyzed the similarities and differences between the predictions of the different models, and compared them to a hypothetical scenario in which the IRA had not been passed.

By 2035, overall emissions of the U.S. economy are likely to be 43 to 48% lower than they were in 2005, the researchers report in the journal Science. Without the IRA, emissions would be 27-35% below 2005 levels, they calculated. This is one of several findings that indicate the IRA is likely to accelerate existing trends in the economy. In short, the green transition is already happening, but the IRA speeds it along.

 

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The models show that on average, nearly two-thirds of the emissions reductions come from the power sector. Electricity emissions will fall to an average of 68% below 2005 levels in 2030, and 87% below 2005 levels by 2035. Without the IRA, power sector emissions would fall by only about half of 2005 levels by 2035.

The IRA will spur lots of solar and wind power development. On average, the models indicate that solar and wind generating capacity will grow by 58 gigawatts per year from 2021 through 2035 – more than twice the growth rate without the legislation, and greater than the record installation of 33 gigawatts in 2021.

The IRA will also reduce transportation-related emissions by encouraging adoption of electric vehicles (EVs). The models predict on average that EVs will make up 41% of all cars and light trucks sold in 2030, compared to 31% in the scenario without the IRA and way up from 7% of all sales in 2022.

The reduction in fossil fuel use means that American households and businesses will spend more on electricity, but less on energy overall. Households could pay $13 to $190 less for energy per year by 2030 and $73 to $370 less by 2035, compared to the scenario without the IRA, the researchers found.

Like most other nations, the United States has made pledges to reduce carbon emissions in line with the Paris Agreement’s goal to hold global warming to 2 °C. But also like most other nations, the country is not on track to fulfill these promises.

The United States has set a goal of reducing greenhouse gas emissions by at least 50% by 2030. Without the IRA, the country will fall short of that goal by 1.0 to 1.6 gigatonnes of carbon dioxide per year, according to the analysis. The IRA narrows this emissions gap to 0.5 to 1.1 gigatonnes per year.

“Although IRA accelerates decarbonization, including beyond 2030, no models indicate that the 2030 U.S. climate target would be met with IRA alone,” the researchers write – an indication of just how much work remains to be done.

Source: Bistline J. et al.  “Emissions and energy impacts of the Inflation Reduction Act.” Science 2023.

Image: ©Anthropocene Magazine.

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