Closing the US Emissions Gap After Inflation Reduction Act

As millions of Americans suffered through record heatwaves and devastating floods this summer, Congress finally responded to the climate crisis with a major investment in solutions. The Inflation Reduction Act (IRA) is the most significant federal climate legislation ever enacted in the United States, providing $370 billion over 10 years to support clean electricity, electric vehicles, heat pumps and more.

Analysis from multiple groups (here, here and here) shows that this legislation could help the country cut emissions to approximately 40% below 2005 levels by 2030. That’s huge progress towards the U.S. climate goal of slashing emissions 50-52% by 2030.

There’s now a much smaller gap left to bridge. So how do we get all the way there?

The significant investments and credits included in the IRA will make it easier and more cost-effective for states, cities and businesses to move ahead with ambitious climate actions of their own. Analysis in 2021 from America Is All In highlighted actions states, cities and businesses could take together with the federal government to achieve the 50-52% emissions-reduction target.

Here are five actions the U.S. federal government, states, cities and the private sector can take to help close the post-IRA emissions gap:

1) Deploy clean vehicles

Cars and trucks are the largest source of greenhouse gases in the United States. The U.S. Environmental Protection Agency (EPA) has clear authority to set standards that can not only reduce these emissions, but also save consumers money in fuel costs.

In December 2021, EPA issued emissions standards covering Model Year (MY) 2023-2026 passenger vehicles, which it estimates will produce $190 billion in net benefits over the lifetime of those vehicles. Since then, the market share of electric vehicles has soared as new models were introduced and gas prices spiked. EVs’ market share reached 5.6% of all vehicles in the second quarter of 2022, more than double their share a year earlier. The IRA’s tax credits of up to $7,500 for purchasing an electric vehicle will greatly accelerate this trend.

Yet today there is still a huge variation in EV adoption among states — EVs comprised 18% of vehicle sales in California, but less than 1% in North Dakota in the first five months of 2022.  EPA can accelerate the EV transition across the nation by setting standards for MY2027-2030 vehicles, based on achieving at least a 50% EV market share by 2030, as well as continued improvement in internal combustion engine vehicles.

The EPA has also proposed new standards for medium- and heavy-duty vehicles. The agency should finalize the strongest possible rule, prioritizing electrification of school buses, a goal supported by its new $5 billion Clean School Bus Program.

Implementation of the National Electric Vehicle Infrastructure program can help support states’ EV transition. The Bipartisan Infrastructure Law provides $5 billion for states to build a fast-charging network, with stations located every 50 miles along major highway corridors. States can help the U.S. achieve greater emissions reductions by making full use of this program and adopting standards to require that all passenger vehicle sales be zero-emissions by 2035.

2) Generate clean power

Power plants were the largest source of greenhouse gas emissions in the United States until 2016, when coal plant retirements and increases in wind and solar generation reduced emissions below those of the transport sector. The IRA will greatly accelerate these trends, leading to as much as an 80% reduction in power sector emissions in 2030 compared with 2005 levels.

EPA’s ability to set power plant pollution standards was constrained by the Supreme Court’s illogical decision in June 2022, but the agency should nonetheless move forward in setting strong standards based on carbon capture technology that can be applied on a plant-by-plant basis, as allowed by the Court’s ruling. While the Court’s decision prevents EPA from considering generation shifting (such as from coal to renewables) as the basis for determining the “best system of emissions controls” when establishing power plant standards, the ruling doesn’t prevent power companies from accelerating their transition to clean power when they decide how to comply with the rule. Indeed, a strong proposal from EPA could accelerate these trends by setting expectations for the shift to clean electricity, regardless of whether the rule ultimately goes into effect. The IRA’s support for carbon capture technologies will allow EPA to set stronger standards by making these technologies more cost effective.

EPA should also move forward with strong health-based standards for other pollutants from power plants, which will further enhance the competitiveness of clean generation sources relative to coal- and gas-fired power plants.

States can go further by setting 100% clean electricity standards, as 20 states have already done. And cities and private companies can contract to purchase 100% clean power on a 24/7/365 basis, which will make progress toward a fully clean electricity system.

3) Connect consumers to clean power

The Federal Energy Regulatory Commission (FERC) is an independent agency that has traditionally worked on a bipartisan basis to ensure that electricity markets and infrastructure enable all resources to compete. As part of its legal duty, FERC must remove barriers to newer, emissions-free technologies, allowing them to access the markets and transmission networks on an equal basis as traditional power plants.

FERC released its strategic plan in March 2022. The agency has initiated a series of ongoing reforms that can help meet and potentially exceed clean energy targets by improving transmission planning to anticipate grid needs as the resource mix changes and extreme weather threats increase. FERC can go further by encouraging the use of technologies available today to optimize existing infrastructure, such as higher-capacity, lower-loss advanced conductors and controls that can better direct power flow. The agency could also reform the process to connect new resources to the grid so that lack of transmission does not stall construction of new wind farms and solar arrays.

Modernizing electricity market design to account for newer resources, as well as improving accessibility and participation in FERC proceedings are other cornerstones of FERC’s strategic plan. For the first time, FERC has issued an Equity Action Plan that describes how the agency will incorporate equity and environmental justice into its operations. Earlier this year, FERC approved transmission rates that enabled a Native American tribe to jointly own a transmission line with a utility. Joint ownership arrangements can ease project siting, and FERC could expand on this model to further facilitate siting.

The Department of Energy (DOE) will also play a key role in ensuring that the nation’s transmission network can cost-effectively connect new renewable resources to electricity customers. This will require coherent planning across broad regions, stakeholder outreach, and modeling and technical assistance. DOE’s national transmission planning study will provide this critical analytical foundation.

Determining who pays for transmission is also a challenge, and DOE’s $2.5 billion Transmission Facilitation Program will prioritize projects that enhance the efficiency or reliability of transmission and lower electricity sector greenhouse gas emissions. The IRA also provides additional funding for DOE analysis and facilitation of transmission as well as funding for loans to support construction of transmission lines in designated national interest corridors.

4) Expand state and local climate action

Many U.S. states and cities are already at the forefront of climate action. In 2022 alone: Washington state passed a $17 billion climate-focused transportation package that will invest billions in public transit and clean transportation; Connecticut became the latest state to commit to 100% clean electricity by 2040; New Mexico adopted new rules to reduce air pollution from oil and gas operations; and Chicago committed to powering all city facilities and operations with renewable energy by 2025, becoming one of the largest U.S. cities to make this commitment.

State and local actors will play an essential role in helping the nation as a whole reach its 2030 climate goal because they control several policy levers to reduce emissions. State public utility commissions, for instance, regulate investor-owned utilities and can play a pivotal role in enabling a zero-carbon grid. State and local governments can focus their transportation investments on repairing existing roads rather than expanding them in ways that increase driving. They can also improve public transit and adopt land use planning, permitting and housing policies that reduce the need to drive.

Similarly, state and local governments can advance building sector decarbonization via energy efficiency requirements, performance standards and incentives for clean energy. Given the local nature of climate impacts, state and local governments can also drive the adoption of effective adaptation and resilience strategies.

Of course, climate action by subnational actors is not a substitute for federal leadership and a nation-wide climate strategy. At the same time, actions by subnational climate leaders such as California and New York, which are a big part of the U.S. economy, can have cascading impacts beyond their jurisdictions by shifting the market and encouraging others to take similar actions. California first adopted a zero-emissions vehicle (ZEV) mandate in 1990; since then, 15 states have adopted California’s ZEV requirement.

Federal funding and technical assistance, which the IRA and Bipartisan Infrastructure Law provide, can further encourage more states and local governments to get on board and accelerate the clean energy transition. Moreover, the various tax credits and other provisions in the IRA will help bring down the cost of clean technologies, making it cheaper for states and cities to adopt new climate programs and ratchet up their climate ambitions.

5) Redirect private investment to climate action

The IRA will provide strong incentives for the private sector to invest in emissions-reducing technologies — from battery manufacturing to systems that capture carbon dioxide directly from the atmosphere — but how aggressively companies respond to those incentives will have a big impact on how quickly emissions are reduced. Most of the incentives in the IRA are through the tax code and their total value is not capped. This means that if companies and individuals respond to these incentives more than the Congressional Budget Office assumed, the total value of the clean energy investments from the IRA could exceed $370 billion and further reduce emissions.

Companies can build on the IRA by committing to science-based emissions-reduction targets and taking aggressive action to implement them. They can also join initiatives like the Clean Energy Buyer’s Alliance, the First Movers Coalition and Frontier Climate to rapidly scale the market for emissions-free electricity, low-carbon materials and carbon dioxide removal. These efforts will both help reduce emissions in the short-term and drive innovations that lay the groundwork for deeper reductions over time.

Climate change is a financial risk; mandatory disclosure of this risk by businesses can inform capital markets and facilitate allocation of capital to emissions-reduction opportunities. Such disclosures can also serve audiences beyond the financial sector, including governments, employees, customers and activists.

In March 2022, the U.S. Securities and Exchange Commission (SEC) unveiled a draft rule requiring publicly traded companies to disclose climate-related risks and greenhouse gas (GHG) emissions. The draft rule is based on the globally accepted framework of the Task Force on Climate Related Disclosure (TCFD). If fully implemented, the SEC rule would help investors, companies and others manage growing financial risks linked to GHG emissions and shift investment toward businesses advancing climate solutions. These shifts could help nudge the country closer to its 50-52% emissions-reduction target.

Using Every Available Means to Reduce US Emissions

These additional actions by the federal government, states, cities and the private sector will be critical to achieving the U.S. 50-52% emissions-reduction target.

It is important to acknowledge, however, that executive branch actions like some of the ones referenced above are subject to legal challenges and can be more easily reversed than federal legislation. Following the recent Supreme Court decision curtailing the EPA’s  authority to regulate emissions from power plants, the outcomes of litigation are even more uncertain. Federal regulations are an important tool that should be pursued to their fullest potential, but given the risks they face, it is even more important for non-federal actors to take additional and complementary actions.

The United States must use every available tool to tackle climate change or it will fall behind other countries taking advantage of the new climate economy. Fully executing the Inflation Reduction Act —and going beyond it — can help create a future that is prosperous, equitable and secure.