The largest infusion of funding in U.S. history to tackle climate change will need some help from power plant, methane and clean vehicle rulemakings to cut economywide greenhouse gas emissions in half by 2030, analysts said.

A huge political victory for President Joe Biden, the nearly $370 billion in climate and energy spending that the U.S. Senate cleared Aug. 7 under the Inflation Reduction Act could reduce U.S. greenhouse gas emissions by about 40% by 2030 from 2005 levels, according to one scenario developed by the Rhodium Group.

That leaves a gap of 10-12 percentage points from where the U.S. has pledged to be by 2030 on its journey toward net-zero emissions by 2050. The Rhodium Group said the legislation puts the U.S. 2030 goal "within reach" but acknowledged, as did other analysts and experts, that more is needed.

"Regulations on vehicles, both light-duty vehicles and medium- and heavy-duty trucks, are the most consequential ones building on the tax credits in this bill," Dan Lashof, U.S. director of the World Resources Institute, or WRI, said during an Aug. 8 call with reporters. "It really gives [the U.S. Environmental Protection Agency] an opportunity to set standards that put the U.S. on a trajectory to shift to 100% clean vehicles, which the manufacturers have also said they want to do."

The transportation sector is the largest source of emissions in the U.S., accounting for 33% of CO2 emissions in 2020, according to the EPA.

The EPA finalized new vehicle emissions standards for passenger cars and other light-duty vehicles in December 2021 for model years 2023-2026 and is working on a separate rulemaking for model years 2027 and beyond. The new vehicle mandates already in place are expected to avoid 3.1 billion tons of CO2 emissions by 2050.

In March, the agency also proposed tougher standards for buses and other heavy-duty vehicles to cut harmful exhaust and lower climate-warming CO2 emissions — although some environmental groups have criticized the carbon provisions as being too weak. In addition, the agency is finalizing rules to control methane emissions from existing oil and gas facilities, a measure it said would reduce the equivalent of 920 million metric tons of CO2 — more than what all U.S. passenger cars emitted in 2019.

Both rules can have a significant impact, according to the WRI.

For the electricity sector, the EPA is reportedly working on rules to limit emissions from coal and new gas-fueled power plants, which will be proposed in early 2023. The rulemaking follows the recent Supreme Court ruling that restricted how emissions from existing power plants can be regulated.

The power plant rule will also be needed to help the U.S. speed up greenhouse gas emissions cuts ahead of 2030, Lashof said.

Because the Inflation Reduction Act makes carbon capture and sequestration, or CCS, more cost-effective with the help of more generous 45Q federal tax credits, the bill "will put EPA in a position to issue a stronger regulation than they might otherwise have issued," the WRI director said. "Utilities could choose to apply CCS to their coal-fired plants or replace those plants with zero-emission sources. Either way, we would see a major reduction in power plant emissions."

Hydropower industry feels left out

Some industry and advocacy groups are likely to renew their push to fix what they perceive to be shortcomings in the Inflation Reduction Act that could hamper climate progress.

"We are very concerned that it creates an uneven investment landscape that is going to drive a lot of existing, flexible carbon-free generation to close," Malcolm Woolf, president and CEO of the National Hydropower Association, said in an interview.

Language that would have offered a 30% investment tax credit for existing hydropower facilities was stripped out of the Senate bill. The credit was critical for plants that cannot afford to relicense their permits over the next decade, risking the loss of 17.5 GW of clean energy, Woolf said.

Hydropower plant owners often have to spend tens of millions of dollars on facility upgrades as part of their relicensing process, which in turn can take up to a decade. Some find they cannot afford to modernize their plants, choosing instead to close them down. Just since 2020, 17 hydropower stations went out of business, according to the association's data.

"There was $30 billion in this package to prevent at-risk nuclear facilities from closing. $30 billion, and yet not a dime for ... hydropower facilities," Woolf said. "So we're going to continue to work with legislative champions like Sen. [Maria] Cantwell and Sen. [Lisa] Murkowski, who've promised to work with us to try to fix this oversight this Congress. We're looking at other legislative vehicles for later this year."

The Inflation Reduction Act does, however, offer a 30% investment tax credit for new pumped storage hydropower, a provision the industry group called "a game changer for developing new projects." Such projects are also a dispatchable energy source that can fill in when other renewable sources cannot produce power.

Hydropower accounted for just over 19% of carbon-free power generation in the U.S. in 2020, according to S&P Global Market Intelligence data.

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