Projecting Electricity-Sector Investments Under the Inflation Reduction Act: New Cost Assumptions and Interactions with EPA’s Greenhouse Gas Proposal

Abstract

Energy Pathways USA, an initiative of the Nicholas Institute for Energy, Environment & Sustainability at Duke University, has released a report that offers new insights into US energy transition investments. This report comprehensively models the intersecting effects of the Inflation Reduction Act (IRA), clean electricity development cost increases, and the impacts of proposed US Environmental Protection Agency (EPA) greenhouse gas (GHG) regulations for fossil fuels. Core findings of the modeling include:

The IRA substantially accelerates the decline in US emissions through 2032, even in the face of recent renewables cost increases. After 2032, future reductions require additional policies. Recent increases in financing and equipment costs have disproportionately large effects on renewables and have dampened the speed of the renewables transition but not altered basic trends. Regardless of inflation, retail electricity prices and household electricity bills decrease under the IRA. The availability of both sites and permitting for renewables can have a major effect on emissions trends. Reductions in the scope of renewables sites can potentially lead to emissions that are 50% higher in 2032 than otherwise expected under the IRA. The IRA can dramatically change the desired investments in renewables in some regions of the country, while other regions might adopt similar strategies irrespective of the IRA. If natural gas prices remain low, gas generation will largely displace nuclear once the IRA production credits expire, while also displacing many potential new renewables. The electrification of transportation can increase emissions from generation, but total generation emissions would remain at levels well below those today; even before considering emissions savings from the vehicles themselves. Some regions will require a significant number of miles of new spur transmission lines to connect new renewables to the grid. However, interregional expansion of long-distance transmission may be limited based on current costs. The EPA GHG proposal can potentially cut in half the emissions remaining after the conclusion of the IRA. However, the proposal does not reach net-zero emissions from generation by 2050. Under the EPA GHG proposal, the relative prices of natural gas and hydrogen, or costs associated with retrofitting gas units to co-fire with hydrogen, can have large effects on both emissions and costs. Prior to 2038, the majority of emissions reductions from the GHG proposal are the result of coal carbon capture and storage. After 2038, hydrogen markets contribute most of the additional reductions, along with increased renewable generation (assuming hydrogen is cost competitive with natural gas). If the clean hydrogen needed under the EPA GHG proposal is provided by electrolysis, significant amounts of new generation may be required. Solar photovoltaics expand to meet electrolysis needs, but they may not provide all requisite electricity.

Energy Pathways USA is convened by the Nicholas Institute for Energy, Environment & Sustainability based at Duke University, in collaboration with the Energy Transitions Commission. This report constitutes a collective view of Energy Pathways USA. Members of Energy Pathways USA endorse the general thrust of the arguments made in this report but should not be taken as agreeing with every finding or recommendation. The companies involved have not been asked to formally endorse the report.