Human decision-making can also cause models and reality to misalign. “People don’t necessarily always do what is, on paper, the most economical,” says Robbie Orvis, who leads the energy policy solutions program at Energy Innovation.
This is a common problem for consumer tax credits, such as those for electric vehicles or energy-efficient home upgrades. People often don’t have the information or funds to take advantage of tax credits.
Similarly, there are no guarantees that the credits in the electrical sectors will have the impact that the modelers expect. Finding sites for new power projects and obtaining permits for them can be challenging, potentially derailing progress. Some of that friction is accounted for in the models, Orvis says. But there’s still potential for more challenges than modelers expect.
It’s not enough
Putting too much stock in model results can be problematic, says James Bushnell, an economist at the University of California, Davis. On the one hand, models could overestimate the change in behavior due to tax credits. Some of the projects claiming tax credits likely would have been built anyway, Bushnell says, particularly solar and wind installations, which are already becoming more widespread and cheaper to build.
Still, whether or not the bill lives up to modelers’ expectations, it’s a step forward in providing climate-friendly incentives by replacing specific solar and wind credits with credits for ‘clean energy’ that will be more flexible for developers to choose from. which technologies to implement.
Another positive of the legislation is all its long-term investments, the potential impacts of which are not fully captured in economic models. The bill includes money for research and development of new technologies like direct air capture and clean hydrogen, which have yet to be tested but could have big impacts on emissions in the coming decades if they are efficient and practical.
Whatever the effectiveness of the Inflation Reduction Act, however, it is clear that more climate action is still needed to meet emissions targets in 2030 and beyond. Indeed, even if the modelers’ predictions are correct, the bill is still not enough for the United States to meet its goals set under the Paris Agreement to cut emissions to half of 2005 levels in 2030.
The path forward for US climate action is not as certain as some might wish. But with the Inflation Reduction Act, the country has taken a big step. Exactly how big is an open question.