Human decision-making can also lead to mismatches between models and reality. “People don’t always do what’s most economical on paper,” says Robbie Orviswho 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 home energy efficiency upgrades. Often people don’t have the information or money they need to take advantage of tax credits.
Likewise, there are no guarantees that credits in the energy sectors will have the impact that modellers expect. Finding locations for new energy projects and obtaining permits for them can be challenging and potentially derailing progress. Some of this friction is incorporated into the models, Orvis says. But there is still potential for more challenges than modellers expect.
Overstocking model results can be problematic, says James Bushnell, an economist at the University of California, Davis. For starters, models might overestimate how much behavior change results from tax cuts. Some of the projects claiming tax credits would probably have been built anyway, Bushnell says, especially solar and wind installations, which are already more widespread and cheaper to build.
But whether or not the bill meets modellers’ expectations, it’s a step forward in providing climate-friendly incentives as it replaces solar and wind-specific credits with broader clean energy credits that will be more flexible for developers when it comes to financing. choose which technologies to use.
Another positive aspect of the legislation is all its long-term investments, the potential effects of which are not fully captured in the economic models. The bill includes money for research and development of new technologies such as direct air capture and clean hydrogen, which are still unproven but could have major impacts on emissions in the coming decades if they prove efficient and practical.
Regardless of the effectiveness of the Inflation Reduction Act, however, it is clear that more climate action is still needed to meet the emissions targets by 2030 and beyond. Even if the modellers’ predictions are correct, the bill is still not enough for the US to meet the targets set under the Paris agreement to halve emissions to half their 2005 levels by 2030.
The path ahead for US climate action is not as certain as some would like. But the country has taken a big step with the Inflation Act. How big is still an open question.