With the enactment of the Inflation Reduction Act (IRA), our nation is now finally positioned to achieve its climate targets. Thanks to the IRA, clean energy businesses will benefit from stable, long-term tax incentives like those enjoyed by the fossil fuel sector for more than a century. Tax credits for renewable generation are complemented by new incentives for energy storage, clean hydrogen and domestic clean energy manufacturing. Analysts predict that these programs will reduce greenhouse gas emissions in the U.S. by roughly 40 percent below 2005 levels by 2030.
This is a welcome moment of hope in the face of a climate crisis that is accelerating faster than predicted. But how can we ensure these projections actually come to fruition? And how do we build on this progress to ensure a more climate-friendly future?
Prompt completion of Treasury Department guidance fleshing out key program details is a critical first step. Clean energy investors, developers, manufacturers and buyers are waiting for clarity from the U.S. Treasury to help assess how to best structure transactions and maximize benefits under the new law.
And then there are issues related to how new clean energy ties into our electrical grid. To realize the IRA’s potential, there is a dire need to expand and upgrade the nation’s outdated and balkanized transmission infrastructure. Big picture, the current U.S. grid cannot effectively move energy from America’s rich renewable resource areas to the population centers with the greatest electricity demand. According to recent studies from Princeton, MIT and the National Renewable Energy Laboratory, meeting U.S. climate goals will require more than double the current U.S. transmission capacity.
The good news is the Federal Energy Regulatory Commission (FERC) has embarked on an important effort to improve how we plan and pay for transmission. The Department of Energy has also launched multi-faceted programs to foster strategic transmission investments. Left out of the IRA, however, was a transmission investment tax credit, which we will eventually need to spur the investment required to achieve a reliable, efficient and decarbonized energy system.
An important related issue concerns the needlessly lengthy interconnection process for new clean power projects. Even as we see electricity blackouts in parts of the country, there are a staggering 1,300 gigawatts (GW) of wind, solar and storage projects queued up waiting to connect to the system. The over 900 GW of wind and solar in the queue could power over 200 million American homes, and the 400 GWs of stranded energy storage would significantly boost grid reliability. But a recent government study shows the interconnect process typically drags on for four years. Here too, FERC has a key role to play. Renewable advocates need the agency to move rapidly to finalize the proposed rulemaking it issued recently to address this challenge.
Looking beyond the grid issues, we are incredibly fortunate the economics of renewable energy technologies improved so dramatically over the past decade that the clean energy tax incentives in the IRA can yield so much progress toward a sustainable climate. We project that investments in renewable generation and enabling technologies will accelerate from the current $50-$60 billion annually to $90-$100 billion annually, which is more in line with our national climate goals.
But studies show that achieving the long-term emission reduction targets necessary to meet the climate challenge will require additional steps beyond the pivotal gains we will see from incentives.
The Biden administration’s “whole of government” approach to climate change will help. Initiatives to power government facilities with renewable electricity, enhance climate disclosure requirements, streamline project siting, improve energy trade policies, and develop the domestic supply chain are welcome and much needed.
Ultimately, however, we will need to go further. Historically, the U.S. has addressed environmental concerns by deploying varying regulatory approaches. We effectively responded to the acid rain problem with a cap on emissions coupled with market-based trading. Urban air quality has improved dramatically as a result of both health-based air quality standards and technology-based standards for motor vehicles. We directly addressed stratospheric ozone depletion with a mandatory phase-out of chlorofluorocarbons and other ozone-damaging compounds, demonstrating our ability to act with other nations to solve global threats. Eventually, we will need to look to the Clean Air Act, which provided authority for these programs and many others, and deploy some version of these regimes, or perhaps a carbon emission fee, to ensure the reductions necessary to complete the transition to a climate-safe economy.
Clearly, we have a lot to do. But the good news is, at long last, we are on the right path.
Gregory Wetstone is president and CEO of the American Council on Renewable Energy, a national nonprofit that unites finance, policy and technology to accelerate the transition to a renewable energy economy.