Global emerging climate technology diffusion and the Inflation Reduction Act

Read the full story from Rhodium Group.

The Inflation Reduction Act represents a turning point in US climate policy and a suite of recent analyses estimate it will significantly accelerate the pace of US greenhouse gas emissions reductions. Most analyses of the emissions impact of the Inflation Reduction Act (IRA) have focused on the extent to which the legislation accelerates deployment of relatively mature technologies, like wind, solar and electric vehicles within the United States. The IRA also includes significant incentives for the development and deployment of earlier-stage emerging climate technologies (ECT), like clean hydrogen, sustainable aviation fuel, and direct air capture. Much of the potential emissions benefits of these incentives will likely occur after 2030 and outside the US, as IRA-driven cost declines accelerate deployment globally, yet currently there are limited analytical tools to quantify these emissions reductions.

In this note, we introduce a new framework designed precisely for this purpose and apply it to key ECT provisions in the IRA. This preliminary analysis of some of the ECT incentives in the IRA finds that for every ton of CO₂ reduced within the US, an additional 2.4-2.9 tons of CO₂ emissions reductions are achieved outside the US, thanks to IRA-driven cost reductions in the “green premium” of ECTs globally.