Bottlenecks and the Inflation Reduction Act
The Inflation Reduction Act became law in August 2022. The progress we've made since then can tell us a lot about where and how to focus our efforts going forward.
Business fables are the strangest books I’ve read. Poorly written with one-dimensional characters, classics like The Five Dysfunctions of a Team aren’t known for their subtlety; they hit you over the head with the theme again and again and again. Yet as I began researching the impact of the Inflation Reduction Act for this piece, my mind kept turning to The Goal, a classic business fable about supply chain management.
My favorite chapter of The Goal focuses on Boy Scout camping trip gone awry. Mr. Rogo is leading his son and the rest of the troupe on a hike to their campsite. Progress is slow—too slow. They struggle to stay together on the path; the fastest boys push the pass while the slowest boy, poor Herbie, lags behind. They spend more time waiting for Herbie than they do hiking. The problem is, it’s getting late, and they have miles to go before they get to their campsite. What will they do?!?
Thankfully, Mr. Rogo has a flash of insight and decides to put Herbie at the front of the line. Instead of being a bottleneck, Herbie sets the pace. While putting Herbie in the front kept them together, it didn’t speed them up enough until Mr. Rogo realized that poor Herbie was carrying the heaviest pack. After dividing Herbie’s supplies across the rest of the troupe they double their speed and make it to the campsite in time to cook dinner. The kids were happy and Mr. Rogo learned a valuable lesson: the key to supply chain management is eliminated bottlenecks: find the Herbie and ease his burden.
Taking Stock of the Inflation Reduction Act
Since the passage of the Inflation Reduction Act (IRA) in late 2022, investment in clean energy is booming. According to the Clean Investment Monitor (CIM)
There was $239 billion in new investment in the manufacture and deployment of clean energy, clean vehicle, building electrification and carbon management technology in the U.S. in 2023, up 38% from 2022. A record $67 billion of this investment occurred in the fourth quarter of 2023, a 40% increase relative to the same period in 2022.
The CIM team published a fascinating report that compared the actual deployment of 1) zero emissions vehicles (ZEV) such as battery electric, plug-in hybrid, and fuel cell vehicles; and 2) utility-scale clean electricity generation and storage capacity to respected forecasts that coincided with the passage of the IRA. The results underscore just how much a Herbie or two can slow things down.
Zero Emissions Vehicles
Let’s start with the good news: ZEV sales are booming. An estimated 1.43 million ZEVs were sold in 2023, which was at the high end of estimates reviewed by CIM and almost three times the Department of Energy’s Energy Information Administration in 2020 projection of 580,000 ZEV sales in 2023.
At 9% of sales, ZEVs have crossed the innovation valley of death and are going to become an increasingly large percentage of the vehicles sold in this country. There isn’t a single Herbie blocking deployment. The two biggest barriers are costs, which continue to fall as the industry scales and buyer tax credits remain, and range anxiety.
To eliminate range anxiety, the Bipartisan Infrastructure Law invested $7.5 billion in EV charging infrastructure, and the Biden Administration has a goal of installing 500,000 EV charging stations by 2030, including a “backbone” of high-speed chargers every 50 miles along major road, freeways, and interstates. (As an aside, I was interested to learn that more than half the trips taken by Americans each day, regardless of transportation modality, were less than three miles—only 2% of trips were greater than 50 miles.) ZEV sales will go up and down from quarter to quarter, but the overall story is a tremendous success: ZEVs are here to stay, the Herbies are small, and we’re investing to eliminate them.
Utility-scale clean electricity generation and storage capacity
2023 was a big year for renewable energy. For the first time, wind and solar generated more electricity than coal. Because of the support from the IRA, it was cheaper to operate wind and solar than coal 99% of the time (up from 70% before the IRA).
Even though operational cost isn’t a barrier, renewables aren’t coming online as fast as expected. As the chart below makes clear, we’re lagging behind what’s required to stay on the 40% reduction in net GHG emissions by 2030 pathway (e.g. meet the orange bar projections). Hitting these projections would be good, but doing so still wouldn’t meet the 50-52% reduction the US pledged under the Paris Agreement.
According to the CIM report, “the biggest barriers to deployment [of renewables] between now and 2030 are non-cost in nature—like siting and permitting delays, backlogged grid interconnect queues, and supply chain challenges.” According to the New York Times it takes renewable energy developers four years to get approval for projects—more than twice as long as a decade ago.
Approval is just the first step. The next Herbie/bottleneck is getting approval to connect to the grid. Because costs are down and demand for renewables is high, grid operators are buckling under the weight of their backlogs of requests to connect. PJM, the largest grid operating in the country, is in the midst of a four year pause in accepting new applications (2022 to 2026) so that it can focus its attention on eliminating the backlog. That’s one big Herbie.
The transmission infrastructure itself is our biggest and final challenge. We need to more than double of transmission capacity to put all of these proposed renewable energy projects to work, yet the process for building out this capacity and paying for it is broken. Building these lines can take over a decade and the process can be marred in red tape and pushback from NIMBYs.
According to research by Grid Strategies on renewables, the “average network upgrade charges have grown from about 10 percent of total project costs a few years ago to as much as 50 to 100 percent of those costs today, according to data from Lawrence Berkeley National Laboratory and input from multiple ISOs and RTOs.” Instead of these costs being distributed across projects, they can fall on just the one trying to connect to the grid. This is a major reason why less than 20% of solar and wind proposals make it through the interconnection queue. This is insane. (If you’re interested in diving deep into transmission issues, check out these articles from the New York Times and Canary Media.)
Removing these bottlenecks will require the full resources and attention of the federal government. Thankfully, FERC and Department of Energy are actively addressing these transmission and interconnection issues. Sadly, the experts working on these types of highly technical topics will likely be fired and replaced with stooges if Trump wins and signs his planned executive order to eliminate civil-service protections for 50,000 people (see this chilling article from The Atlantic for details).
Finish the Job
When President Biden talks about using his second term to finish the job, he’s talking about competent administration, policy implementation, and the removal of bottlenecks. In a second Trump Administration, the federal government will go from finding and eliminating Herbies to being the biggest bottleneck against climate action in the world. That’s an outcome we simply can’t afford.
I’ve only covered a sliver of what the IRA covers and how its transforming our country for the better. Energy touches every part of our lives; updating our energy infrastructure to accommodate new, renewable energy sources will not be self-executing—it will require coordinate effort from businesses, scientists, and the government. This is a reason why we need Biden to win reelection and finish the job.
To bring this back to the personal level, I’d encourage all of us to take action by finding the Herbies that our lives less sustainable and working to eliminate them.