Maximizing the impact of a history-making federal clean energy investment program
At about a half-trillion dollars, the clean energy investments contained in the Infrastructure Investment and Jobs Act and Inflation Reduction Act present a game-changing down payment toward the United States’ climate goals. Analysts are now asking: How can we assure the most effective use of these funds?
Permitting reform is one key need that has rightly received attention. However, we pose that a broader suite of policy actions must be considered, the sequencing of which is essential to catalyze both the speed and scale of deployment required to achieve net-zero emissions by 2050. This broader suite of actions can be identified and prioritized via a strategic approach we term “reverse-engineering”.
Reverse-engineering is a process of interpreting modeled energy scenarios through a project developer’s lens. A scenario could include, for example, the deployment of 3 to 4 terawatts of solar and wind, or 100 million tons per year of clean hydrogen for the purpose of achieving a mid-century net-zero target. Reverse-engineering works backward from these full-scale deployment levels, identifying critical obstacles, sources of friction and uncertainties that might cause risk-taking developers to delay execution of investment decisions that keep pace with the modeled scenario.
To demonstrate, we consider how a developer might assess the scenario of delivering 1 billion tons per year of carbon capture and storage (CCS) in the United States by 2050, which one middle-of-the-road scenario in Princeton’s “Net-Zero America” study indicates is likely to be necessary to achieve economy-wide net-zero emissions.
An immediate consideration is the extent of coordination needed to achieve this goal: carbon dioxide (CO2) captured from thousands of point-sources around the country must be transported to regions where it can be safely stored underground. This creates a chicken-or-egg problem: Owners of industrial and bioenergy facilities are unlikely to invest in CO2 capture without sufficient confidence in long-term access to affordable CO2 transport and storage. Often, this confidence will need to be underpinned by a third-party agreement to take full responsibility for the CO2 during the capture project’s economic life and for a limited period beyond. Similarly, CO2 storage operators are unlikely to invest in creating commercial capacity without sufficient confidence in secure supplies of CO2 priced to satisfy the targeted return on storage investment. Meanwhile, pipeline developers are caught in the middle.
Who moves first?
Reverse-engineering shows that this chicken-or-egg problem is a critical barrier to delivering the CCS target outlined above. Even under the most favorable of permitting reforms, CO2 capture developers will not sanction a project investment decision without reliable access to CO2 transport and storage.
To address this obstacle, we recommend that pre-2030 public investments in CCS are, where possible, weighted toward CO2 storage and transport, notably storage characterization (i.e., technical work that facilitates high-quality, development-ready storage sites) and national trunk pipeline development. State and local governments can provide policy support by clarifying subsurface pore-space rights, enabling key right-of-ways, facilitating consensus-building and land-owner access negotiations with local communities, as well as providing matching funds and supportive financing for priority projects (e.g., CO2 storage hubs). Collectively, these whole-of-government efforts can lay a foundation for the widespread and rapid adoption of CO2 capture projects, most of which would come online after 2030.
It follows that the more ambitious 45Q carbon sequestration tax credit achieved via the Inflation Reduction Act must be supplemented. While the enhancements in credit value are important, they are unlikely to stimulate the near-term pre-commercial investments in storage characterization and pipeline development that are key to catalyzing a goal of 1 billion tons of CCS per year by 2050. This is because 45Q rewards projects as CO2 is stored underground. New programs targeted to the above pre-commercial activities are likely necessary to unlock a large-scale CCS ambition.
It should be clear that this thinking can be widely applied to inform policy, whether that be to support ambitious renewables, energy storage, or clean fuels delivery targets. By incorporating private developer decision-making, reverse-engineering addresses a limitation in current tools used to inform policy. For example, least-cost optimizing models widely employed by analysts materialize multiple projects at the click of a button (e.g., new utility-scale solar farm [first project] connected to ready transmission [second] and the electricity grid [third]). In reality, risk-taking developers are far more cautious in their decision to execute projects due to uncertainty around a slew of variables, including future technology costs and performance, durability of policies, timing of interdependent capacity, offtake volumes and prices, supply chain constraints, litigation threats, public acceptance of the project or technology and more. Reverse-engineering draws-out these real-world factors to inform policies and investments capable of assuring rapid and deep decarbonization on-the-ground.
In the words of Energy Secretary Jennifer Granholm, and on the back of significant federal funding and a rapidly closing window to achieve both 2030 and 2050 climate targets, we must “deploy, deploy, deploy” new clean energy projects and infrastructure. We strongly share this enthusiasm. To maximize the beneficial use of available funds, we urge analysts to consider the granularities of developer decision-making as a means to better inform policy recommendations.
Chris Greig is the Theodora D. ’78 and William H. Walton III ’74 senior research scientist at Princeton University’s Andlinger Center for Energy and the Environment.
Sam Uden is the director of climate and energy policy for Conservation Strategy Group, LLC.
Robert Socolow is professor emeritus at Princeton University’s Department of Mechanical and Aerospace Engineering.