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The Inflation Reduction Act and US Journey to Net-Zero Emissions: Electric Vehicles, Buildings Electrification, Hydrogen Economy, and More

By Julie Topf, SDSN

The past two years under the Biden-Harris Administration have been characterized by important progress to advance the energy transition and environmental justice in the US. With climate change as a top priority of the Administration, President Biden has rejoined the Paris Agreement, created the first-ever National Climate Task Force, and set national goals to: (1) reduce US greenhouse gas emissions 50-52% below 2005 levels in 2030, (2) reach 100% carbon pollution-free electricity by 2035, (3) achieve a net-zero emissions economy by 2050, and (4) deliver 40% of the benefits from federal investments in climate and clean energy to disadvantaged communities through the Justice40 Initiative. These efforts, among others, have been complemented by the passage of landmark legislation that is providing historic clean energy investments and incentives to accelerate emissions reductions and climate resilience across the country.

Signed into law in November of 2021, the Bipartisan Infrastructure Law (BIL), also known as the “Infrastructure Investment and Jobs Act,” provides $65 billion for clean energy and grid-related investments, with further resources for “upgrading the power grid, improving public transit and investing in zero-emission transit and school buses, installing a nationwide EV charging network, cleaning up legacy pollution, replacing lead pipes and delivering clean water.” Additional transformative investments are being unlocked by the Inflation Reduction Act (IRA), the most significant legislation in US history to tackle the climate crisis and strengthen American energy security, which was signed into law in August of 2022 to provide $369 billion toward advancing clean energy solutions and promoting community-scale environmental justice nationwide. 

Despite the progress being achieved by these recent political developments, there are several actions that the Biden-Harris Administration should begin to take now to ensure the US reaches net zero emissions by 2050. Such actions are described in America’s Zero Carbon Action Plan (ZCAP), which charts out the path to deep decarbonization in the US via a technical (infrastructure), economic (spending and jobs), and policy framework that the federal government can use to realize net-zero carbon emissions by mid-century. Over the last two years, the Administration has made mixed progress toward achieving the ZCAP’s policy recommendations. For example, although the US has successfully begun to reestablish its foreign political leadership in climate, the government has not yet implemented binding national emissions reductions goals or sufficient mandates for transport and building electrification. A breakdown of the Administration’s progress toward achieving the ZCAP’s recommendations can be found in this matrix.

The recent passage of the IRA presents an unprecedented opportunity for the Administration to continue implementing these policy recommendations to advance the national energy transition. The social, political, technological, and economic shifts generated by the law have the potential to significantly accelerate decarbonization efforts across the country. Accordingly, recent conversations with experts from Evolved Energy Research and the Zero Carbon Consortium––the cohort of renowned US researchers responsible for creating the ZCAP––have begun to examine the impacts the IRA may have on the US journey to net zero emissions by 2050.

Key findings shared by Evolved Energy Research include:

  • The IRA effectively incentivizes deep decarbonization energy system activities in the near to medium-term. Through 2035, the impacts of the IRA have the potential to achieve the most critical benchmarks set forth in the lowest cost pathways to a net-zero economy across all four pillars of decarbonization (electricity decarbonization, energy efficiency, captured carbon, energy electrification).
  • Because most IRA provisions end in the early 2030s, future policy will be needed for continued emissions reductions after 2035 and would make possible even deeper emissions reductions in the next decade. The IRA’s impacts are blunted in the 2035-2050 timeframe as the expiration of clear energy tax credits plateaus emissions reductions progress from electricity, vehicle electrification progress is slowed, buildings and industry are still fueled by significant amounts of natural gas, and a lack of continued support for zero-carbon fuels and CO2 capture stall expansion of the carbon management sector. Please see the image below for a visualization of the gaps in IRA support over time.
  • IRA demand-side adoption incentives focus on the electrification of transportation (zero emissions freight and light duty vehicles), and to a lesser extent the electrification of buildings.
  • Aggressive tax incentives for zero emissions vehicles (ZEVs) accelerate ZEV adoption in the near-term (2020s-early 2030s) faster than anticipated. However, in the long-term, incomplete turnover of freight vehicles leaves more internal combustion engine vehicles on the road due to other factors, such as potential supply chain constraints.
  • IRA incentives also accelerate building electrification through the early 2030s, but limited funding sources exhausts deployment and results in only modest electrification.
  • Through 2050, the transformation of the transportation sector drives significant increases in electricity demand. Aggressive ZEV deployment results in reduction in oil demand, but limited building and industrial electrification and efficiency leaves a significant amount of pipeline gas.
  • The IRA has the potential to dramatically reduce emissions in the electricity sector, if clean resources and transmission can be sited rapidly; however, electricity growth after 2035 may not be met with new clean resources given the expiration of tax credits. In addition, because clean energy tax credits do not distinguish between the carbon intensity of residual fossil fuels, coal generation increases overall emissions from the electricity sector.
  • IRA incentives accelerate hydrogen deployment in the 2020s-2030s and should help bring down the cost of electrolyzers. However, after expiration of tax credits, even with lower costs of technologies, hydrogen growth starts to stall out. 
  • IRA incentives for carbon capture are most attractive for industry and existing biofuel production (ethanol). While the IRA does not offer many new incentives for biofuels, it does offer incentives for direct air capture. The majority of captured carbon will be stored geologically, with the residual share of captured carbon used as feedstock to produce synthetic liquid fuels.
  • The gap between US emissions and the nationally determined contribution (NDC) target (50% reduction from 2005 baseline) is ~700 Mt CO2e in 2030. The IRA reaches a 50% reduction by 2035.
  • Anticipation of induced changes (domestically and globally) is difficult, but the IRA does appear to position the US well in key sectors (electricity and transportation), and with the deployment of technologies that may be critical in the longer-term (hydrogen, direct air capture, etc.).

Experts from Evolved Energy Research, the Zero Carbon Consortium, and the SDSN USA network at large are committed to continue building on this national momentum and look forward to new collaborations to keep supporting the US clean energy transition in the new year.


Supporting Materials:

About the Zero Carbon Action Plan (ZCAP)
A science-based, comprehensive policy framework that presents a strategic plan to create a carbon-neutral economy for the United States by 2050. The ZCAP offers detailed chapters on the solutions for reducing emissions across six key sectors: power generation, transportation, industry, buildings, food and land use, and materials. The Plan lays out a strategy for putting Americans back to work building a vibrant 21st century U.S. economy based on advanced technologies, good jobs, clean energy, climate safety, and economic security. The strategy for transitioning from the fossil fuel status quo to a low-carbon energy future builds on four pillars: (1) using energy more efficiently (2) decarbonizing electricity; (3) switching from fossil fuel combustion to electricity in most current uses; and (4) carbon capture and storage. For more information and access to the Plan, please visit www.unsdsn.org/Zero-Carbon-Action-Plan.

About the Zero Carbon Consortium

The ZCAP was designed by a cohort of nearly 100 researchers and 19 Chairs from across SDSN USA who make up the Zero Carbon Consortium, experts in their fields of climate change policy across six key sectors: electricity (power) generation, transportation, industry, buildings, sustainable land-use, and sustainable materials management. For a complete list of Consortium members, please see the full ZCAP report at https://www.unsdsn.org/resources/americas-zero-carbon-action-plan/.

About Evolved Energy Research (EER)

Evolved Energy Research, LLC is a leading research and consulting firm focused on the transition to a low-carbon energy economy. Experts from Evolved Energy Research are responsible for the development of novel modeling tools and pathways reports at the forefront of the field. EER has collaborated with SDSN on various deep decarbonization pathways studies, including the ZCAP. For more information about EER, please visit https://www.evolved.energy/. For pathways studies co-created by SDSN and EER, please visit https://www.unsdsn.org/our-work/topics/climate-and-energy/.

About SDSN USA

The SDSN USA network brings together researchers, knowledge creators, and thought leaders to mobilize expertise on the advancement of the Sustainable Development Goals (SDGs) in the United States. The network is co-hosted by Columbia University, Howard University, and the University of California, San Diego. The network was launched in December 2018 and has quickly grown to become the largest network within SDSN. For more information, please visit www.sdsnusa.org or email [email protected].