Q&A with SEI’s Peter Erickson: “There is something for everyone to like” in new US climate law

Transformation of the energy economy is what this bill (now, law) is all about! There is something for everyone to like, from electric vehicles to heat pumps to carbon capture and storage. But what I expect to be most transformational from an emissions standpoint are the tax incentives for electric vehicles and solar and wind power. Those could lead to 100 GW/year of new renewable capacity built each year by the end of this decade, which is about triple recent rates of construction in the US and more-or-less matching the rate already seen in the world’s top builder of renewable power, China. (The U.S. ranks worse than at least 50 other nations in its deployment of renewable power.)

The benefits from tax incentives for electric vehicle sales could be equally impressive, though will depend on how quickly a North American supply chain for electric vehicle (EV) components and final assembly can be ramped up.

How the bill could change the politics of climate action in the US, and maybe beyond. The Inflation Reduction Act is, in a way, a departure from previous thinking about climate policy in the country.

While previous approaches have centered on carbon pricing (with direct investments being secondary), this law goes big on investments in people and jobs and new industries. Those are all people that then had a big stake in this bill becoming law, and which gave it the political momentum needed to break through the stalemate and dysfunction that typifies politics in the US Senate. The result will likely be new and growing political constituencies that can help sustain an energy transition in the US. It is possible that this investment-oriented approach, while not new (many other countries have led with investment, as well), could also expand globally.

Of course, it must also be said that the lack of carbon pricing – the punitive “stick” to go with all the investment “carrots” – also helped avoid the scale of opposition we saw, especially from fossil fuel interests, in our last round of major climate policy proposals over a decade ago.

Anyway, you see examples of the attention to political constituency for climate action all throughout the law. These are illustrated by the specific, concrete benefits for US energy companies and communities, such as the domestic requirements in the electric vehicle incentives (which, to some eyes, border on protectionism); the grants and loans for domestic solar manufacturers; and the huge, under-appreciated incentives for innovation in heavy industry (like cement and steel). This is industrial policy for the 21^st century, American style.

I’m glad you brought that up, because the environmental justice provisions of this law are decidedly mixed. Some environmental justice advocates are strongly critical of the law’s climate justice provisions, pointing out that the bill didn’t do nearly enough to support front-line communities, like those on the US Gulf Coast, that struggle daily with pollution from fossil fuel extraction and processing.

Those are valid concerns, for the health of those communities, and also for the development of trust in key constituencies needed to sustain the low-carbon transition. And yet the larger context is important, too: the reduction in emissions (most of which are from fossil fuels) spurred by the law will be something like 50 times greater than the increase in fossil fuel emissions to be caused by some of the flaws in the bill. That means, in additions to reduced greenhouse gas emissions, huge improvements in air quality for the country (in which air pollution disproportionally affects low-income and communities of color), if not for residents near fossil fuel facilities on the Gulf Coast.

There is also about $50 billion of funding in the bill for environmental justice communities, though how exactly that is spent will, of course, be a question for future implementation. There is clearly much more work to be done to avoid the numerous health and ecosystem harms caused by fossil fuels.

Yes. One of the provisions that was reportedly made to secure (Democrat from West Virginia) Senator Joe Manchin’s support is the requirement that the US Department of the Interior continue to offer leases of public land and waters for oil and gas drilling. That was disappointing since, as SEI’s work on the Production Gap Report has helped show, oil and gas production will also need to decline over time to be consistent with the goals of the Paris Agreement, and there are important benefits of reducing oil and gas demand and supply in tandem. Still, there is no guarantee that those leases mandated in the law will be sold or end up producing oil or gas. In any case, the net effect on US and even global greenhouse gas emissions is pretty small compared to the likely benefits of the bill.

The bigger issue is the rumored side deal on infrastructure permitting reform, mainly from a process standpoint. It doesn’t seem right to me that Congress should interfere with the due and important consideration of environmental effects of proposed fossil fuel projects, including pipelines, especially given longstanding community concerns.

That said, the issue here isn’t just about fossil fuels, since the pace of permitting for renewable energy and electricity transmission projects is a major factor in how fast the US can decarbonize. And there is certainly plenty of room to streamline the environmental review of energy projects, something I wrote about recently, in a proposal for how to simplify the greenhouse gas emissions calculations that are undertaken during the environmental review process.

Overall, I think permitting reform is important: Project developers need more certainty in the timelines and likely permitting outcomes for their projects, and that applies both to renewable energy (which we need more of, quickly) and fossil fuels (for which we need very few, and for which the “need” is very often over-sold). Perhaps permitting reform can help separate those projects which are plausibly aligned with a low-carbon future from those that are not (while leaving the grey area in the middle up to forces of energy supply and demand). That is a complicated task, though, and so I hope the Democrats (Joe Manchin included) take the time to get it right, and don’t rush to get it done by the end of this month.

I think it is reasonable we could see a 40 percent reduction in emissions. The analysts that have estimated those reductions are top-tier modelling shops, but of course any modelling exercise is a guess at how the future will unfold. Some aspects may proceed more slowly, like if automakers cannot adjust their supply chains quickly enough to meet the requirements of the new EV incentives. But other aspects may proceed more quickly, such as if the loans and grants for industrial emission reduction technologies catalyse new, previously unforeseen breakthroughs, like they helped do for Tesla over a decade ago.

I actually think the reverse could be true! And that’s because another feature of the law is that it defines greenhouse gas emissions as a pollutant under the Clean Air Act, which, in general, is the very thing the Supreme Court said was needed to enable broader (not reduced) regulatory authority for reducing emissions, especially from the power sector. The law drafters knew this, and so this language should help keep this specific law (and the specific emissions targeted by the law) in the clear, even as it cannot on its own change the broader outcome of the Supreme Court’s recent ruling in West Virginia vs. EPA. Still, the fact remains that Congress has now specifically designated carbon dioxide as a pollutant, even if just in certain circumstances, and that may enable future similar actions, or dissuade future challenges to EPA’s authority to regular carbon dioxide.

Overall, I think this law is a hugely surprising, enormously consequential development that will put US emissions on an ever-steepening downward pathway. It isn’t yet enough, but it should also signal to the world that even the world’s largest historical greenhouse gas emitter and fossil fuel producer can get its act together on climate. Maybe the Paris Agreement goals are still in reach, after all.