IRA Also Drives GLOBAL Reduction in GHGs
(from Nerd Corner on Community)
Editor’s Note: I am a huge fan of the plan Bill Gates defines so clearly in his book, How To Avoid A Climate Disaster. (Here is a free copy!) He defines a metric called the “Green Premium” — which is the amount by which “clean” alternatives cost more than existing, fossil-fuel-based ones.
The ONLY way we can get to net-zero is to invent and deploy new technologies that supersede fossil fuel based energy, and that this will mostly be done by the private sector. Therefore, the policy goal is to drive the Green Premium to zero or negative … in order to attract consumers on the demand side and allow suppliers enough margin to incentivize investment, risk, and ultimately a reliable, cheap inventory.
Two years ago—before passage of the Inflation Reduction Act (IRA)—noted energy economists Severin Borenstein (University of California) and Ryan Kellogg (University of Chicago) pointed out that “the only GHG reduction goal that really matters is the global one.” The key implication of that oft-ignored fact, they argued, is that “every proposed investment should be judged on how it could scale to reduce global emissions and on the knowledge that can be gained and applied globally.”
By that test, the IRA passes with flying colors, according to an innovative new study by the Rhodium Group. Over the course of many decades, it finds that “for every ton of CO2 reduced within the US, an additional 2.4-2.9 tons of CO2 emissions reductions are achieved outside the US, thanks to IRA-driven cost reductions in the “green premium” of [emerging climate technologies] globally.”
Like most other energy modeling organizations, Rhodium Group’s previous analyses of the IRA focused just on emissions impacts in the United States, typically just to the end of the decade. In that immediate period, only deployment of currently available technologies will make any difference.
In its new report, however, Rhodium Group observes that over the longer term the IRA’s incentives for emerging technologies like clean hydrogen, sustainable aviation fuel, and direct air carbon capture may have a much bigger impact. By helping to drive down their cost, the IRA’s market promotion efforts will help the rest of the world join the United States in accelerating emissions reductions.
A great example of such positive “spillovers” in the clean tech sector was Germany’s spending of more than 200 billion euros to subsidize solar PV installations in the years 2004 to 2012. “Recent studies have found that market-stimulating policies like Germany’s . . . played a significant role in encouraging innovation and driving down costs globally, contributing as much as 75% of solar PV cost reductions between 2001 and 2012,” the report notes.
By the end of the century, Rhodium Group projects, similar spillovers from the IRA in the emerging clean technologies may drive the abatement of as much as 800 million metric tons of CO2 each year outside the United States.
Echoing Borenstein and Kellogg, the authors observe, “As the US share of global emissions continues to decline, it will be increasingly important for policymakers to evaluate the impact of domestic policy on the pace of global low-GHG technology diffusion directly—by reducing costs and expanding production scale.” Their analysis provides a good starting point for such future evaluations.