Climate Policy

Equity implications of net-zero emissions: A multi-model analysis of energy expenditures across income classes under economy-wide deep decarbonization policies

Abstract: With companies, states, and countries targeting net-zero emissions around midcentury, there are questions about how these targets alter household welfare and finances, including distributional effects across income groups. This paper examines the distributional dimensions of technology transitions and net-zero policies with a focus on welfare impacts across household incomes. The analysis uses a model intercomparison with a range of energy-economy models using harmonized policy scenarios reaching economy-wide, net-zero CO2 emissions across the United States in 2050. We employ a novel linking approach that connects output from detailed energy system models with survey microdata on energy expenditures across income classes to provide distributional analysis of net-zero policies.

Although there are differences in model structure and input assumptions, we find broad agreement in qualitative trends in policy incidence and energy burdens across income groups. Models generally agree that direct energy expenditures for many households will likely decline over time with reference and net-zero policies. However, there is variation in the extent of changes relative to current levels, energy burdens relative to reference levels, and electricity expenditures. Policy design, primarily how climate policy revenues are used, has first-order impacts on distributional outcomes. Net-zero policy costs, in both absolute and relative terms, are unevenly distributed across households, and relative increases in energy expenditures are higher for lowest-income households. However, we also find that recycled revenues from climate policies have countervailing effects when rebated on a per-capita basis, offsetting higher energy burdens and potentially even leading to net progressive outcomes. Model results also show carbon Laffer curves, where revenues from net-zero policies increase but then decline with higher stringencies, which can diminish the progressive effects of climate policies. We also illustrate how using annual income deciles for distributional analysis instead of expenditure deciles can overstate the progressivity of emissions policies by overweighting revenue impacts on the lowest-income deciles.

Deploying direct air capture at scale: how close to reality?

Abstract: The role of negative emissions in achieving deep decarbonization targets has been demonstrated through Integrated Assessment Models (IAMs). While many studies have focused on bioenergy with carbon capture and storage (BECCS), relatively little attention has been given to direct air capture (DAC) in IAMs beyond assessing the role of low-cost DAC with carbon storage (DACCS). In this study, we employ an economywide model to more fully explore the potential role of DAC, considering the full range of cost estimates ($180-$1,000/tCO2), DAC units supplied by either dedicated renewables or grid electricity, and both the storage of captured CO2 (DACCS) or its utilization (DACCU) to produce fuels.

Our results show that the deployment of DAC is driven by its cost and is dominated by DACCS, with little deployment of DACCU. We analyze the technical and policy conditions making DACCS compete with BECCS, investigating scenarios in which BECCS is limited and there is no emissions trading across countries. With an international emissions trading system (ETS), we find that Africa takes advantage of its large and cheap renewable potential to export emissions permits and contributes more than half of total global negative emissions through DAC. However, DAC also proves essential when no ETS is available, particularly in Asian countries due to scarce and expensive access to land and bioenergy.

Our analysis provides a comprehensive evaluation of the impact of DAC on the power system, economy, and land use.

Highlights

  • The deployment of DAC should be discussed relative to its cost.

  • DAC is deployed at scale at a cost lower than $400/tCO2 in our baseline.

  • Limiting BECCS and international emissions trading increases DAC deployment.

  • DAC stresses the power sector and land use locally but provides economic benefits.

     

Power sector impacts of the Inflation Reduction Act of 2022

Abstract: The Inflation Reduction Act (IRA) is regarded as the most prominent piece of federal climate legislation in the U.S. thus far. This paper investigates potential impacts of IRA on the power sector, which is the focus of many core IRA provisions. We summarize a multi-model comparison of IRA to identify robust findings and variation in power sector investments, emissions, and costs across 11 models of the U.S. energy system and electricity sector.

Our results project that IRA incentives accelerate the deployment of low-emitting capacity, increasing average annual additions by up to 3.2 times current levels through 2035. CO2 emissions reductions from electricity generation across models range from 47%–83% below 2005 in 2030 (68% average) and 66%–87% in 2035 (78% average).

Our higher clean electricity deployment and lower emissions under IRA, compared with earlier U.S. modeling, change the baseline for future policymaking and analysis. IRA helps to bring projected U.S. power sector and economy-wide emissions closer to near-term climate targets; however, no models indicate that these targets will be met with IRA alone, which suggests that additional policies, incentives, and private sector actions are needed.

KEY INSIGHTS
• Power sector CO2 emissions could drop 66-87% by 2035 with IRA from 2005 (compared with 39-68% without IRA).
• IRA could accelerate clean electricity deployment, including 1.4-6.2 times current installed wind and solar capacity by 2035.
• Low-emitting generation shares—including renewables, nuclear, and carbon capture—in 2035 range from 59-89% with IRA, compared with 46-74% without IRA.
• Total fiscal costs of IRA's power sector provisions could range from $240-960 billion through 2035. Energy costs could be $73-370 per household per year lower by 2035 with IRA.

Compounding uncertainties in economic and population growth 1 increase tail risks for relevant outcomes across sectors

Abstract: Understanding the long-term effects of population and GDP changes requires a multisectoral and regional understanding of the coupled human-Earth system, as the long-term evolution of this coupled system is influenced by human decisions and the Earth system. This study investigates the impact of compounding economic and population growth uncertainties on long-term multisectoral outcomes. We use the Global Change Analysis Model (GCAM) to explore the influence of compounding and feedback between future GDP and population growth on four key sectors: final energy consumption, water withdrawal, staple food prices, and CO2 emissions.

The results show that uncertainties in GDP and population compound, resulting in a magnification of tail risks for outcomes across sectors and regions. Compounding uncertainties significantly impact metrics such as CO2 emissions and final energy consumption, particularly at the upper tail at both global and regional levels. However, the impact of staple food prices and water withdrawal depends on regional factors. Additionally, an alternative low-carbon transition scenario could compound uncertainties and increase tail risk, particularly in staple food prices, highlighting the influence of emergent constraints on land availability and food-energy competition for land use.

The findings underscore the importance of considering and adequately accounting for compounding uncertainties in key drivers of multisectoral systems to enhance our comprehensive understanding of the complex nature of multisectoral systems. The paper provides valuable insights into the potential implications of compounding uncertainties.

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