The nation’s most ambitious climate law will drive steep carbon emissions cuts in the power and transportation sectors by 2030, but its impact is more muted in other key areas of the United States economy, a recent report from independent research firm Rhodium Group finds.
One year after the passage of the 2022 Inflation Reduction Act, the Rhodium Group estimates the U.S. is not on track to reach its goal of halving carbon emissions by 2030 and will need at least five additional years to reach that milestone without new policy.
“We get pretty far down in the power sector,” said Ben King, U.S. energy associate director at Rhodium Group and the report’s author. “But it really is important to drive emissions reductions in building and industrial sectors, where technologies are available for making those cuts.”
The report finds the industrial sector, which includes cement, chemicals and steelmaking, is poised to become the largest source of emissions and could even increase its aggregate emissions by 2035.
Industrial output and natural gas prices dictate the pace of emissions decline in the sector, with lower gas prices and higher clean technology costs causing companies to invest less in new technologies. The sector is not investing as much in decarbonization despite the tax credits, unlike the power and transport sectors, King said.
Indeed, IRA’s 10-year tax credits are not long-lasting enough for the U.S. to reach its decarbonization goals, especially in the hard-to-abate industrial sectors that respond only slightly to the law’s voluntary incentives, according to BloombergNEF’s New Energy Outlook 2023 report.
“The IRA primarily focuses on carrots, or voluntary incentives” but now it’s time for stricter policies to push reluctant sectors to start moving, said Tara Narayanan, report co-author and BNEF’s senior associate for U.S. power markets.