By Dieter Holger March 17, 2023 Source: WSJ | WSJ PRO
Photo / Image Source: Unsplash, Brighter projection is good news for companies struggling to cut emissions from energy purchases.
The U.S. Energy Information Administration estimates that energy-related carbon-dioxide emissions will drop more than originally forecast, a decline it attributes mostly to the Inflation Reduction Act. A new government projection says the U.S. climate bill will speed up cuts to greenhouse-gas emissions this decade, helping ease the burden on corporate climate targets but still falling short of Paris Agreement ambitions.
The U.S. Energy Information Administration said Thursday that its central projection was that energy-related carbon-dioxide emissions would drop 33% by 2030 compared with 2005 levels, a significant change from its previous estimate of a 23% drop. The EIA considers only energy-related emissions, not the entire economy, and uses 2005 as the baseline because the Paris Agreement also targets that year.
“The U.S. energy system is rapidly changing,” EIA Administrator Joseph DeCarolis said. Cutting CarbonThe U.S. Inflation Reduction Act haschanged the outlook for cuts to carbon-dioxide emissions
The agency’s outlook for more decarbonized electricity is especially good news for companies working to cut emissions from energy purchases, known as Scope 2 emissions, said Richard Newell, a former EIA administrator and president of Washington, D.C.-based nonprofit Resources for the Future. The EIA attributed most of the improvement to the 2022 climate bill known as the Inflation Reduction Act. The legislation offers $369 billion of government incentives for energy and climate-related programs over 10 years. Additional emissions-reduction improvements came from technological advancements in areas such as electric vehicles, heat pumps and electric arc furnaces for iron and steel as well as changes to the macroeconomic outlook.
Even with the generous IRA incentives, the EIA’s new projection fails to meet the Paris Agreement’s target to cut emissions 50% to 52% by 2030 from 2005 levels.
Companies are adjusting their spending around the U.S. climate bill, but they are also still dealing with uncertainty around its incentives, said Robert LaCount, partner and North America climate change advisory lead at consulting firm ERM.
“We encourage federal agencies to clarify, as quickly as possible, how provisions will be implemented so that the clean energy transition can continue with the pace and scale needed to meet the challenge,” he said.
The emissions projections should raise corporate confidence in setting achievable targets and decarbonization plans, but the U.S. climate bill doesn’t remove all barriers to the clean energy transition for companies, said Abby Davidson, managing director, sustainability solutions at consulting firm Engie Impact.
“Careful planning, detailed analysis and real investments are needed to translate goals into tangible action,” she said.
It also remains to be seen if the rosier outlook will spur companies to raise their climate ambitions.
“I’m not sure it will lead to more ambitious corporate climate targets, many of which are already targeting net-zero emissions—a goal that will require policy and technology adoption well beyond that included in EIA’s new projections,” Mr. Newell said.
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