Human decision-making can also cause a mismatch between model and reality. “People don’t always do what, on paper, is the most economical,” he 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. People often don’t have the information or resources to take advantage of tax breaks.
Likewise, there are no guarantees that loans in the power sector will have the impact that modelers expect. Finding locations for new power projects and obtaining permits for them can be challenging, potentially slowing progress. Some of this friction is factored into the models, Orvis says. But there is still the potential for more challenges than modelers expect.
It’s not enough
Putting too much into model results can be problematic, he says James Bushnell, an economist at the University of California, Davis. First, the models might overestimate the extent of behavioral change due to tax breaks. Some of the projects for which the tax credits are sought would likely be built anyway, Bushnell says, especially solar and wind farms, which are already more widespread and cheaper to build.
Still, whether the bill meets modelers’ expectations or not, it’s a step forward in providing climate incentives, as it replaces credits specific to solar and wind with broader clean energy credits that will give developers more flexibility in choosing which technologies to implement.
Another positive side of the law is all its long-term investments, the potential impacts of which are not fully captured by economic models. The bill includes money for research and development of new technologies like direct air capture and pure hydrogen, which are still unproven but could have a big impact on emissions in the coming decades if they prove effective and practical.
Regardless of 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 US to meet its Paris Agreement goals of halving 2005 to 2030 emissions.
The path ahead for US climate action is not as certain as some would like. But with the Inflation Reduction Act, the country took a big step. What the exact size is is still an open question.