In key sectors of the US economy, the transition to clean energy is well underway. It’s just not happening fast enough to forestall the worst impacts of climate change.
That’s the overriding message of the 2023 Sustainable Energy in America Factbook released Wednesday. The joint project of BloombergNEF and the Business Council for Sustainable Energy has been tracking global and national energy-transition trends since 2013. Its latest report indicates that 2022 was another record-breaking year for the growth of renewable energy, electric vehicles and other key decarbonization technologies.
Over the past decade, renewable energy has moved from the fringe to the center of the power sector. Electric vehicles have taken on a central role in automakers’ future manufacturing plans. Lithium-ion batteries are being produced on a multi-gigawatt scale for mobile and grid applications.
And developing technologies such as electric heating, carbon capture and hydrogen for decarbonizing heavy industry and transport are being supported by government policy, including last year’s Inflation Reduction Act. The historic investments enabled by that bill are “truly a game-changer” for the energy transition, which is “now kind of hardwired into the US economy,” Ethan Zindler, head of Americas for Bloomberg NEF, said in a Tuesday briefing.
BNEF tracked a record-breaking $141 billion in US energy transition finance in 2022, second only to China, he said. This category spans renewable power, batteries, electric vehicles, electrified heating, carbon capture, sustainable materials, nuclear power and hydrogen production.
In the last decade, renewable energy has been the main bucket of energy spending transitions. Ever-cheaper solar and wind power took the lion’s share of new generation built over that time, shifting the power sector from being the country’s primary source of carbon emissions to emitting less than the transportation sector and on par with industrial emissions, Zindler noted.
While US renewables growth saw a slight dip in 2022 compared to 2021 — the result of rising equipment and construction costs, permitting and interconnection challenges and trade disputes — the sector continued to break records in terms of the share of power it supplied US grids, reaching 13 percent of all electricity generation in 2022.
But renewable energy’s preeminence in US energy-transition financing was supplanted last year by electric vehicles. Electrified transport, a category that includes revenue from the sale of EVs plus investment in charging infrastructure, stood at $57.3 billion in 2022, compared to $49.5 billion invested in renewables.
Nearly 1 million EVs were sold in the US last year, a 50 percent increase from the year prior, making up 7 percent of all new vehicle sales, Zindler pointed out. Getting more EVs on the road is critical to cutting emissions from the transportation sector, which replaced power generation as the country’s top carbon emitter in 2016. But it’s also a boon to drivers facing high fossil-fuel costs over the past year — “Electricity is just a much less expensive way to power your car than gasoline or diesel,” Zindler added.
EV and battery costs, hefty EV commitments from automakers and state-level clean car mandates have all helped drive US EV sales, which still lag behind Europe on a per capita basis. Zindler highlighted other contributing factors, including that “cars are cooler” and available in a range of makes and models, and locations to charge them are proliferating.
The Inflation Reduction Act sets the stage for even faster growth in years to come with its lucrative tax credits for new and used EVs that meet requirements for US final assembly and sourcing of batteries and components from the US or US-friendly countries.
That domestic manufacturing bonus has also spurred a boom in US battery manufacturing, almost all of it is centered on supplying the EV market. Commitments to making batteries and their components in North America grew to nearly $17 billion between the passage of the Inflation Reduction Act in August 2022 and the end of that
Batteries are also becoming an integral part of the increasingly renewable-powered US grid. Utility-scale energy storage hit a record 4.8 gigawatts deployed in 2022, up from 3.7 gigawatts in 2021, putting the US in the lead globally for grid storage capacity. Lucrative tax credits for manufacturing and deploying batteries in the Inflation Reduction Act, paired with credits for a range of clean energy technologies, will generate further investment, according to the Factbook.
Now the bad news
Still, despite all of these advances, the US is not yet on a path to meeting its carbon-reduction commitments under the international Paris Agreement. Carbon emissions rose slightly in 2022 and 2021, rebounding from the big drop caused by the pandemic in 2020. “There’s no denying that that’s certainly not good news in the grand scheme,” Zindler said, although he pointed out that power and transportation-sector emissions remained below 2019 levels in 2022.
But these short-term trendlines disguise the long-term disconnect between actual US emissions and the country’s long-term goals. While 2022 emissions were 3 percent below 2019 levels, they were only 13.8 percent below 2005 levels.
That puts the country on a trajectory to fall short of meeting its Paris Agreement targets of reducing emissions by 26 to 28 percent below 2005 levels by 2025 and 50 to 52 percent below 2005 levels by 2030. Making up the difference would require emissions to drop by 5 percent per year over the next three years, which “would be rather remarkable, let’s be honest,” Zindler said.
Last year also marked another grim milestone in climate change and weather-related disasters, with $165 billion in damages over the course of the year. That’s the third most costly climate disaster year on record for the country — 2020 and 2021 were the first and second most costly, respectively.
US data from last year “shows the resilience of the energy transition,” said Lisa Jacobson, president of the Business Council for Sustainable Energy, who also spoke at the Factbook briefing. But “it also shows that our work is not over.”
The Inflation Reduction Act has unlocked hundreds of billions of dollars in incentives for a range of clean energy investments, noted Jacobson. This chart from the 2023 Factbook breaks down some of that spending by category.
But while money is flowing, energy market structures and federal permitting and sitting regulations for energy projects threaten to slow or derail the pace and scale of clean energy growth needed to meet the country’s decarbonization commitments, she said. The 2023 Factbook cites studies indicating that for most large infrastructure projects in the country, it takes between two to six years to complete federal environmental reviews and secure permits from federal, state and local governments.
“We will not meet our goals if we don’t take care of streamlining and make it faster and more efficient to build energy projects here in the United States,” Jacobson said. She repeated a call from clean-energy industry groups to the Biden administration and Congress to reach a bipartisan consensus on passing laws to reform federal permitting policies. But it’s unclear how this might happen, given the failure of a permitting reform bill last year in the face of opposition from both Republicans and Democrats.
Clean-energy projects are struggling to connect to the power grid, with many developers facing years of long waiting lists and high interconnection costs across many parts of the country. And similarly long timelines and high costs are stymieing the expansion of transmission grids themselves. Federal regulators are in the midst of a wide-ranging review of transmission policies with the aim of reducing these costs and waiting times, but any resulting reforms will likely take years to mitigate the current bottlenecks.
Finally, Zindler noted that the $1 trillion in global energy transition investment in 2022 was slightly outmatched by global investment in fossil fuel industries. Clean energy investments will have to grow to about four times as much as investments into fossil fuels “if you really want to address climate change in a meaningful way,” he said.