Monday Study – The Emissions Impacts Of The Inflation Reduction Act

The Inflation Reduction Act Drives Significant Emissions Reductions and Positions America to Reach Our Climate Goals

August 18, 2022 (U.S. Department of Energy)

Summary

The Inflation Reduction Act of 2022 represents a historic, $369 billion investment in the modernization of the American energy system. The U.S. Department of Energy’s (DOE) preliminary assessment finds that this law—in combination with other enacted policies and past actions—will help drive 2030 economy-wide greenhouse gas (GHG) emissions to 40% below 2005 levels. The legislation would get the U.S. a significant way towards our overall 2030 climate goals, positioning the U.S. to reach 50-52% GHG emission reductions below 2005 levels in 2030 with continued executive branch, state, local, and private sector actions not included in this analysis. Examples of continued executive branch actions include implementation of the recently enacted CHIPS Act as well as updates to standards that drive energy efficiency and pollution reduction from the transportation, power, building, and industrial sectors.

DOE estimates that the clean energy provisions of the Inflation Reduction Act of 2022 and the Bipartisan Infrastructure Law of 2021 together could reduce emissions by approximately 1,000 million metric tons (MMT CO2 e) in 2030, or about a gigaton. Considering the other climate and energy provisions of these laws brings the total to nearly 1,150 MMT CO2 e. These expected emissions reductions are equivalent to the approximate combined annual emissions released from every home in the United States.

In addition to these pollution-reduction benefits, these measures would lower energy costs for consumers, enhance energy security, and improve human health. Moreover, by stimulating investments in domestic supply chains, manufacturing, and clean energy deployment, these laws will create hundreds of thousands of highquality jobs and new economic opportunities. The laws also address historical inequities in our nation’s energy system by lowering the cost of and expanding access to clean energy technologies and by providing relief to communities that have suffered from disproportionate exposure to energy-related pollution.

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Introduction

The Inflation Reduction Act and the Bipartisan Infrastructure Law together represent historic investments in the modernization of the nation’s energy system, totaling more than $430 billion. The specific provisions in these two laws will lower energy costs for consumers, enhance the nation’s energy security, improve human health, mitigate climate change, create high-quality jobs and new economic opportunities for communities, and address historical inequities in our energy system.

In this issue brief, DOE estimates the potential impact of the Inflation Reduction Act and the Bipartisan Infrastructure Law on GHG pollution. These preliminary estimates, which focus on the clean energy provisions of the two laws, are based on DOE’s understanding of the many programs and incentives created by the legislation. The issue brief also includes impacts associated with provisions pertaining to oil and natural gas as well as agricultural conservation and forestry—sourced from federal agency partners and external analysts…

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Key Drivers of Emissions Reductions across Sectors

Focusing on the clean energy as well as agriculture and forestry provisions of the Inflation Reduction Act and the Bipartisan Infrastructure Law, DOE identifies the following key drivers.

Power

DOE’s assessment finds that the new and extended tax incentives in the Inflation Reduction Act will drive nearterm power-sector pollution reductions by accelerating the growth of clean electricity generation, including wind and solar power. Various transmission programs and authorities, as well as a new tax incentive for energy storage, will help ensure that these new resources are reliably delivered to customers. Meanwhile, a new production tax credit in the Inflation Reduction Act and the Civil Nuclear Credit program established by the Bipartisan Infrastructure Law will support the maintenance of the country’s existing nuclear power fleet, ensuring that America does not lose these important clean power resources.

The combined effects of the Inflation Reduction Act and Bipartisan Infrastructure Law will also drive technology innovation, enabling longer-term reductions in power-sector emissions. Enhanced funding for loans, research and development, and demonstration will support innovation and new deployments for a range of technologies, including nuclear, carbon capture and storage (CCS), long-duration energy storage, clean hydrogen, direct air capture, geothermal, and more. Long-term extensions of existing tax incentives and new and augmented tax incentives that collectively cover each of these technologies will help ensure strong commercial interest and provide a basis for potential large-scale deployment.

Industry

DOE finds that programs that support direct emissions abatement at industrial facilities and within manufacturing and recycling processes, incentives for clean fuels, and procurement measures for low-carbon materials all work together to drive industrial-sector emissions reductions. The Inflation Reduction Act’s $5.8 billion Advanced Industrial Facilities Deployment Program plays a significant role, providing financial assistance for facilities to use advanced industrial technologies, such as electrification, low-carbon fuels, carbon capture, and other advanced-manufacturing processes. This will drive emissions reductions in key, emission-intensive industrial sectors, such as iron and steel, cement, and chemicals. The Inflation Reduction Act also leverages the purchasing power of the federal government to support demand for low-carbon construction materials through procurement provisions and supports standardizing Environmental Product Declarations to make it easier for the federal government as well as other climate-conscious buyers to select and purchase cleaner materials. The hydrogen production tax credit will leverage the hydrogen hub and demonstration investments from the Bipartisan Infrastructure Law to drive hydrogen production and subsequent use in subsectors, such as ammonia, petroleum refining, biofuels, heavy-duty transportation, and steel. Similarly, the extension and enhancement of the tax credit for industrial applications of CCS will leverage Bipartisan Infrastructure Law investments in CCS demonstrations and CO2 transportation infrastructure to abate emissions in ethanol, cement, and refining.

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Buildings

Tax incentives for more efficient homes and commercial buildings, rebate programs for home efficiency and electrification, and funding to assist with state and local building-code adoption and compliance are key Inflation Reduction Act measures that will reduce direct emissions from buildings. These build on additional ongoing activities pursued by DOE with the U.S. Department of Housing and Urban Development—such as DOE’s actions to update appliance and equipment standards this year and save consumers an average of $100 on their annual energy bills. Reductions also come from a variety of Bipartisan Infrastructure Law programs, including $3.5 billion in Weatherization Assistance Program funding and support for the Energy Efficiency and Conservation Block Grant Program, State Energy Program, Capitalization for Efficiency Revolving Loan Funds, and Efficiency and Renewable Energy Grants for public schools. Many of these provisions support the electrification of buildings with efficient equipment that takes advantage of lowcarbon electricity, such as electric heat pumps for heating, air conditioning, and hot water. Other investments in efficient windows, doors, and insulation materials, regardless of a building’s heating-fuel type, will generate further emissions reductions. These investments in our nation’s buildings, which can operate for 100 years or longer, will ensure lower emissions, lower costs, and improved comfort for decades beyond 2030.

Transportation

Tax credits for clean cars, trucks, vans, SUVs, commercial vehicles, and heavy-duty vehicles will help drivers and fleets adopt advanced technologies that lower operating costs and reduce emissions. The Inflation Reduction Act’s Clean Vehicle Credit will support the transition to a clean transportation future, reducing GHG emissions and local air pollution while accelerating the expansion of American supply chains for critical minerals and battery production. Together with Bipartisan Infrastructure Law investments of $7 billion to strengthen the American battery supply chain, the Inflation Reduction Act establishes a production tax credit to manufacture battery modules and creates programs to support advanced vehicle technologies and revitalize automotive manufacturing facilities. Moreover, the Inflation Reduction Act will help more Americans access clean transportation through tax credits for lowerincome drivers who purchase previously owned, clean vehicles.

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Expanding upon the states’ efforts to deploy charging infrastructure, funded in part by the Bipartisan Infrastructure Law, an alternative refueling tax credit will help install charging equipment in low-to-moderateincome and rural communities. In addition, electric U.S. Postal Service trucks will help reduce pollution from mail deliveries. To further decarbonize all modes of transportation, the Inflation Reduction Act creates tax credits to facilitate the use of clean fuels including biodiesel, renewable diesel, advanced biofuel, and sustainable aviation fuel. It also provides incentives to deploy alternative-fuel infrastructure and advanced aviation technology, and to reduce diesel emissions from freight and ports.

These investments build on efforts by the U.S. Department of Transportation and the Environmental Protection Agency to update fuel economy and tailpipe emissions standards for vehicles, which will work in concert with these new investments to drive toward meeting the President’s goal of 50% zero emissions vehicles sold in 2030.

Agriculture and Forestry

Combined with the Bipartisan Infrastructure Law and other investments already underway, the Inflation Reduction Act makes a once-in-a-generation investment in part through the U.S. Department of Agriculture that will support agricultural producers, rural communities and their infrastructure needs, while responding and adapting to the climate crisis. Recognizing the critical role American agriculture and forestry play in addressing the climate crisis, the Inflation Reduction Act will invest $21 billion in climate-smart farmers, ranchers, and forest landowners working to reduce GHG pollution, increase storage of carbon in soils and trees, and make their operations more productive. The Inflation Reduction Act will also invest $5 billion to protect communities from the risks of extreme wildfires, conserve forests with significant carbon sequestration benefits, and cool communities vulnerable to the threats of extreme heat. These investments will give farmers, ranchers, forest landowners and rural communities the resources and tools they need to prepare for and adapt to a changing climate, saving lives, property, and livelihoods…

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