Duke Experts: Inflation Reduction Act, Proposed Power Plant Rules Significantly Cut U.S. Emissions

Modeling from Energy Pathways USA finds the two policies can combine to move the country closer to net-zero greenhouse gas emissions, but complementary action is needed to reach the goal by 2050.

A proposal from the U.S. Environmental Protection Agency (EPA) to limit greenhouse gas emissions from the power sector could potentially cut 50 percent of emissions remaining after the Inflation Reduction Act’s (IRA) incentives for renewable power generation conclude. However, the combined effects of the proposed regulations and the IRA do not meet the country’s target of net-zero emissions from electricity generation by 2050, according to a new report from experts at Duke University’s Nicholas Institute for Energy, Environment & Sustainability.

The report comprehensively models the intersecting effects of the IRA, the EPA’s proposed regulations and recent increases in the costs of clean energy development. The modeling was conducted by Energy Pathways USA, a Nicholas Institute initiative that convenes public- and private-sector partners to accelerate progress toward net-zero carbon emissions in the U.S. economy.

“The Inflation Reduction Act has the potential to be the most impactful piece of federal climate legislation in our country’s history,” said report coauthor Jackson Ewing, director of energy and climate policy at the Nicholas Institute. “It nonetheless requires complementary policies such as the EPA’s proposed regulation of greenhouse gases to drive decarbonization at the pace and scale needed. This report offers original analysis on what the IRA and EPA regulation mean for power sector investments at a time of rising development costs in the renewables sector.”

Signed into law in August 2022, the Inflation Reduction Act offers tax credits for renewable energy, nuclear power, electric vehicles and potentially clean hydrogen fuel to spur significant investments in clean energy. Over the last decade, wind and solar energy projects have become more cost competitive with fossil fuels, leading to a gradual downward trend in greenhouse gas emissions. The IRA will substantially accelerate that trend through the expiration of the tax credits in 2032, according to the modeling in the report.

In the last couple of years, higher interest rates and construction costs have disproportionately affected renewable energy projects compared to fossil fuel technologies. While these economic developments are slowing the transition to renewables, the modeling shows a significant decline in emissions still occurs under the IRA’s provisions. Regardless of inflation, retail electricity prices and household electricity bills also decrease.

Building on the expected benefits of the Inflation Reduction Act, the EPA introduced regulations in May that would set emissions standards for fossil fuel power plants and require controls on existing units. As noted in the Energy Pathways USA report, the proposed standards for emissions reductions rely on a pair of emerging technologies supported by IRA tax credits—carbon capture and storage and clean hydrogen.

“Both the Inflation Reduction Act and the EPA’s greenhouse gas proposal could significantly lower emissions in the U.S.,” said Martin Ross, a senior research economist at the Nicholas Institute who led the modeling analysis. “Critical components for successful implementation include the ability to site and permit renewables and the development of markets for hydrogen and carbon capture and storage. The analysis suggests that emissions outcomes can vary widely depending on how these and other factors play out.”

Here are selected results from scenarios explored in the modeling:

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 percent higher in 2032 than otherwise expected under 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.

Under the EPA 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.

If the clean hydrogen needed under the EPA 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 the required electricity.

The report also explored how the IRA could affect investments in renewables and other forms of electricity in different regions of the country. The coasts, for example, would likely have had a similar energy mix through 2032 with or without the law in place. Meanwhile, states in the central part of the country could see a dramatic increase in wind power under the IRA, while Texas could add significantly more solar.

About Energy Pathways USA

Energy Pathways USA is accelerating progress toward a net-zero carbon future by developing workable solutions with public- and private-sector partners across multiple key industries.

Convened by the Nicholas Institute, Energy Pathways USA brings together experts from diverse sectors and organizations to explore and analyze current and proposed federal, state and regional policy incentives and the broad range of their potential impacts, including on emissions, costs, technology and consumer behavior. By advancing cross-sectoral dialogue based on robust policy, technology and modeling analyses, this partnership aims to develop actionable pathways to accelerate an equitable energy transition.

Energy Pathways USA works in collaboration with the Energy Transitions Commission as an autonomous regional initiative of that global effort. The initiative is aligned with the goals of the Duke Climate Commitment, which unites the university’s education, research, operations and external engagement missions to address climate challenges.

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CITATION: Ross, M., J. Ewing, B. Murray, T. Profeta, and R. Stout. 2023. “Projecting Electricity-Sector Investments under the Inflation Reduction Act: Revisiting Key Cost Assumptions and Exploring Potential Interactions with EPA’s Greenhouse Gas Proposal.” NI R 23-08. Durham, NC: Duke University. https://nicholasinstitute.duke.edu/publications/projecting-electricity-sector-investments-under-inflation-reduction-act-revisiting-key.