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Why the climate bill’s impact might not match what many expect

Models could be over- (or under-!) estimating the climate impact of the Inflation Reduction Act

President Biden, seated, shakes hands with Sen. Joe Manchin III (D-W.Va.) on Tuesday after signing the climate and health care bill called the Inflation Reduction Act into law. From right, Rep. Kathy Castor (D-FL), Rep. Frank Pallone Jr. (D-N.J.), House Majority Whip James E. Clyburn (D-S.C.) and Senate Majority Leader Charles E. Schumer (D-N.Y.) also attended the signing. (Demetrius Freeman/The Washington Post)

The Inflation Reduction Act — the health care and climate bill that was signed into law by President Biden on Tuesday — marks the largest climate action ever taken by the federal government. With roughly $370 billion earmarked for clean energy, electric vehicles and carbon capture storage, the bill will certainly decrease the country’s greenhouse gas emissions.

The question is by how much.

The most popular number — the one that has been repeated by the president, scientists and journalists alike — is 40 percent. In a statement released shortly after the deal was reached, Democratic senators Charles E. Schumer (N.Y.) and Joe Manchin III (W.Va.) claimed the new bill would, by 2030, cut emissions 40 percent from 2005 levels. That figure was later supported by results from three independent modeling teams. Rhodium Group, an economics and energy research firm, estimated that the bill would cut emissions by 31 to 44 percent by 2030; Energy Innovation, a climate think tank, predicted a reduction of 37 to 41 percent; and a group of Princeton University researchers called the REPEAT project calculated a carbon dioxide cut of around 42 percent.

The agreement between the senators’ claims and the projections is no surprise — the modeling teams were advising Capitol Hill staff on the likely impacts of the deal before it was made public, said Jesse Jenkins, one of the leaders of the Princeton REPEAT modeling project.

That 40 percent number will be repeated at international climate negotiations and in presidential speeches for years to come. It marks progress toward the president’s signature climate goal — to cut emissions in half by 2030 — and may offer some hope to the millions of young people who have been drawn to climate action in recent years.

But is it correct? That depends — on how you’re measuring, and what you’re measuring against.

At the heart of these predictions are scientists’ highly complicated models of how the economy works, including how energy is used, which can both provide helpful forecasts for the future and are always somewhat inaccurate. As one popular modeling saying goes: “All models are wrong; some are useful.”

The energy models used by Rhodium, Energy Innovation and the Princeton researchers are complex systems of equations, spreadsheets and data that try to represent all the energy used in the United States over a period of time. These models can estimate how many solar farms will be built once tax credits are in place to make them cheaper, or how many Americans will buy electric cars in the next 10 years.

The fact that all three independent modeling groups yielded similar findings is a good sign for the results. But there are still reasons to think that the reality could be different from what the models suggest the bill’s impact will be — or what the public might expect it to be.

1) Humans are quirky

On the one hand, the models predicting a 40 percent drop in carbon emissions may be overly optimistic. Jenkins, a Princeton engineering professor, says that one of the major problems is predicting how quickly consumers, utilities and businesses will switch over to clean technologies.

“The biggest thing in our model that is an abstraction of the real world is the assumption that financial considerations drive decision-making,” he explained. Models assume that human beings are rational actors who base their decisions off costs and benefits; in the real world, that’s not always true.

That means that if it’s cheaper to build a wind farm than a natural gas plant, or cheaper to buy an electric car than a gas-powered car, the model predicts that more wind farms will be built and more electric cars purchased. The REPEAT model currently predicts that all cars sold in 2030 will be electric vehicles, since by that time EVs are projected to be lower cost than gas-powered cars. But in the real world, some consumers will be afraid to switch to EVs even if they are cheaper, simply because they don’t see enough car chargers in their neighborhoods.

Similarly, wind farms and solar panels may be stymied by locals who find them ugly to look at. Long-distance transmission lines, which will be needed to carry renewable electricity from one state to another, could also be held up by red tape.

External economic factors could also slow the push away from fossil fuels. Ben King, associate director of climate and energy at Rhodium Group and one of the authors of the group’s analysis of the IRA, says that cheap fossil fuel prices and faster-than-expected growth could lead to a slower-than-predicted shift to clean energy sources.

2) There’s potential upside

There are also reasons to think that 40 percent is an underestimate for the effects of the bill. Jenkins notes that none of the models can effectively predict technological advancement spurred by government cash — for example, funding for research and development that causes costs for solar, wind, carbon capture and storage or batteries to plummet. Those cost changes, he argues, could cause the clean energy transition to go even faster than expected — but they’re hard to predict in an energy model.

The models also don’t try to predict any changes in state and federal policies. But over the next few years, many states and cities are likely to implement new climate policies, such as requiring electricity to come from renewable sources or phasing out gas-powered vehicles.

“This bill makes it cheaper for every other jurisdiction in the country to increase their ambition and policies,” Jenkins said.

It will also make it easier for the Biden administration to impose stricter limits on emissions from cars and power plants — which in turn could reduce CO2 emissions even more.

Still, there is no “sure thing” in modeling. The emissions reductions from the IRA may be higher or lower than the 40 percent estimate; at the moment, modelers can only provide their best guess of how the future will pan out. But, Jenkins argues, the result is not that different from estimates for the cost of the bill.

Since the IRA’s clean energy provisions are made up mostly of tax credits, it’s hard to predict how many of those credits will ultimately be claimed and how much the bill will cost the government and taxpayers.

“Forty percent is an imperfect estimate,” Jenkins said. “But I think it’s a pretty good estimate.”

3) Progress is already baked in

Depending on how you read that 40 percent estimate, it could be a bit misleading. This is a case of where the models may be correct, but not widely appreciated. The bill is expected to cut emissions by 40 percent compared with 2005 levels — not compared to current U.S. emissions. That’s because emissions have already decreased substantially since 2005. Between 2005 and 2020, CO2 emissions dropped by about 21 percent, thanks largely to a shift from heavily polluting coal to less-polluting natural gas. (The COVID-19 pandemic also caused a dramatic decline in emissions, as millions of cars and planes ground to a halt virtually overnight.)

Over the next eight years, emissions are expected to continue to trend slowly downward, thanks to cheap solar and wind power and a gradual shift to electric vehicles.

Indeed, according to the same three modeling groups, by 2030, emissions are expected to decline by 24 to 32 percent — even without the Inflation Reduction Act.

That doesn’t mean that the bill is without impact, of course. While it might not be as dramatic a shift as it seems initially, in a world in which every extra ton of CO2 not emitted into the atmosphere can help can help curb global warming, an additional 10 to 15 percent reduction in emissions will help to avert serious environmental damage.

More on climate change

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