California's carbon market left to "fill the gap" in revised climate strategy

Photo by Patrick Perkins on Unsplash

The tsunami of climate capital earmarked under the Inflation Reduction Act (IRA) is beginning to be felt in the Californian carbon market.

Signed into law in mid-August 2022, the IRA includes almost $370 billion of funding aimed at unleashing a boom in clean energy deployment and related technologies. In terms of regulatory momentum, the greatest step-up in incentives has come for hydrogen, carbon capture, energy storage and energy efficiency technologies (Chart 1).

As I outline in Post summer blues hit the Californian carbon market, the infrastructure and capacity build-out is likely to start unfolding over the next 3-4 years with cuts to emissions only really likely to be felt from 2025 onwards. Overall, the bill is likely to result in US emissions declining by between 7 and 9 percentage points by 2030 than the pre-existing policies would have enabled, according to Rhodium Group.

Chart 1: US IRA tax credits and other incentives as a % of coverage of the average total cost of each clean technology (%)