Closing the Gap: Achieving U.S. climate goals beyond the Inflation Reduction Act

Abstract

The Inflation Reduction Act sets the stage for substantial greenhouse gas emissions reduction in the United States. However, analyses show that on its own, the IRA is insufficient to meet the nation's stated climate goals. We use an energy system optimization model to understand how the U.S. can build on the IRA to meet climate goals. We model two carbon taxes and a suite of efficiency, fuel, and technology standards, including a clean electricity standard (CES), electrification standards for commercial and residential buildings, a zero-emission vehicle (ZEV) standard, and a clean fuel standard for industry. We compare these three policy scenarios to the U.S.’s stated climate goals (Nationally Determined Contribution). The two carbon taxes and the suite of standards achieve the GHG emissions goals outlined in the Paris Agreement, but no scenario reaches net-zero GHG emissions by 2050. Notably, we find that the average GHG abatement cost under the modeled standards is comparable to a carbon tax set at ∼$200/ton, and both policies achieve similar emissions reductions. Temoa's cost-minimization structure results in the carbon tax always reducing emissions more cheaply than a set of standards; but the similarity in cost emphasizes the near-optimal second-best nature of well-designed standards.” The marginal cost of GHG emissions reduction in each scenario is less than 2% of total system costs. While the modeling results indicate that meeting climate targets may still be possible, they demonstrate that doing so will require rapid and sustained deployment of zero-emission technologies across the energy system.