The US’ transition to a net zero economy by 2050 represents a $30tn investment opportunity in the country’s energy system by 2050, according to BNEF’s latest report, which details a pathway for the US energy system to reach net zero emissions by 2050 using the lowest cost technologies available.

This so-called Net Zero Scenario is presented alongside two other scenarios: a Policy Scenario evaluating the decarbonising impact of key provisions of the IRA, and an Economic Transition Scenario that deploys the cheapest energy technologies without consideration for climate goals.

The power sector is one of the largest sources of carbon emissions in the US today, but it is also the sector that is decarbonising the most rapidly. However, it needs to go further and faster, as it plays a key role in the country realising a net zero economy, according to the report. BNEF’s modelling finds that the cheapest way for the US to reduce emissions involves scaling up investment in wind and solar power, along with low-carbon dispatchable electricity.

In BNEF’s Net Zero Scenario, wind and solar installations reach 3,292 GW by 2050, up from 288 GW in 2022. Solar capacity alone reaches 2,065 GW of installed capacity by 2050, split between rooftop systems and large-scale projects.

In all scenarios detailed in the report, remaining coal generation shuts down during the 2030s, but natural gas continues to play a role in the power grid in 2050. In the Net Zero Scenario, all gas generation in 2050 is paired with carbon capture and storage (CCS). The Policy Scenario finds that by 2028, gas generation coupled with CCS is cost-competitive against unabated gas, after accounting for tax credits. However, CCS tax credits are set to phase out just when the technology begins to see adoption. If extended through 2050, some 205 GW of gas with CCS would see adoption in the power sector, and this would offset emissions from 45% of gas generation in that year, according to the report.

BNEF outlines that rapid electrification of end-use sectors of the economy in the Net Zero Scenario doubles annual power consumption, with 8,660 TWh of demand in 2050 compared to 3,946 TWh in 2021. Power demand in the Policy and Economic Transition Scenarios grows by 44% and 38% respectively in the same period. In each scenario, as the power system decarbonises, those emission reduction gains are passed on to other sectors through electrification.

The US has allocated $369bn through the IRA to fight climate change and strengthen domestic industry, and the report models tax credits and direct subsidies for wind, solar, batteries, electric vehicles (EVs), carbon capture and hydrogen which, in total, represent half of this funding. This support will also stimulate additional ‘dollar flow’ from the private sector, the report adds.

BNEF’s Policy Scenario shows that new tax credits for EVs and carbon capture can lower energy-related emissions by 9% in 2050 compared to the base case Economic Transition Scenario. A push in technologies results in capture of 211mn t/y of CO₂ emissions from gas-fired power generation and 12mn t/y of CO₂ in industry in 2050.

In spite of subsidies for hydrogen and carbon capture, the impact of the IRA on industrial emissions is more muted, limited to some CCS adoption in petrochemicals, the report says. Despite lavish incentives for clean hydrogen production in the IRA and substantial commercial and government interest in the fuel today, BNEF projects limited uptake in the Policy Scenario by heavy industry, due to hydrogen’s higher installation and operating costs. Ultimately, industrial decarbonisation in the US depends more on electrification and fossil fuels with CCS than on hydrogen.

Ultimately, the modelled IRA incentives in the Policy Scenario do not get the US to net zero by 2050, nor on track for its climate targets in 2030, suggesting that clearer and stricter decarbonisation policies will be necessary. ‘The IRA has dangled some very attractive carrots that will get the economy moving, but to make it move fast enough, the US will need a few more sticks,’ comments Tom Rowlands-Rees, Head of North America Research, BNEF.

The Net Zero Scenario entails a $30tn investment opportunity across the US energy system between 2022 and 2050; a third more than the base case of $22tn in the Economic Transition Scenario. The US will need to accelerate investment into both supply- and demand- side measures to speed up the uptake of low-carbon technologies, and sustain this spending over multiple decades, the report notes. To get on track for net zero, the US will need to rapidly scale up investment over the next decade, rising from the $141bn invested in energy transition technologies in 2022, to nearly $10tn spent cumulatively by 2032 to rapidly cut down on emissions.

In all scenarios, about half of the funding required through 2050 is driven by consumer-led purchases of EVs. Investment in power grids is also a key enabler for a net-zero transition. BNEF estimates $3.8tn could be needed between today and 2050 for system reinforcements, new connections and asset replacements to accommodate rising power demand. A corresponding investment in low-carbon power sources will be needed, to the tune of $5.6tn over the same time period.

The IRA’s impact on bridging this financing gap depends on the amount of additional private sector investment that public sector financial support can attract to the market. ‘The IRA is a multibillion dollar down-payment on decarbonisation, but it, and other policies, will need to stimulate trillions in investment to reach net zero,’ concludes Derrick Flakoll, Policy Associate for North America, BNEF.