If you want to see how the United States is revamping our energy system to cut carbon emissions, you can start by following the money.
The Department of Energy (or, the DOE) is one of the largest spenders on transforming our energy system, with a budget of nearly $400 billion to spend on climate projects through 2026. And there’s a whole lot that can get done with that kind of cash.
Here’s what the DOE’s spending tells us about the future of energy in the U.S.
The DOE is a big spender on clean energy, but it isn’t the only investor. In fact, an analysis by Climate Policy Initiative shows that for the last 10 years private sources have contributed at times more than public sources towards climate-friendly ventures.
Funding is needed from both public and private sources to shift the United States to a clean energy future. But making huge shifts to our energy system will mean taking big risks on new technologies, and that’s where the government has some advantages.
When a private company like a startup or a bank invests in a new idea, it needs to get back to investors and show how it’s profiting. That means these companies have a need to prioritize projects that will make them money relatively quickly. As a result, many investments by private companies are focused on what companies can sell to consumers, like electric vehicles.
The government, on the other hand, has a few advantages when it comes to investing in big changes to infrastructure. The government can put funding into projects to serve the public good, like modernizing transmission lines so energy bills can be lowered. The government can also make investments that are much longer term than a private financial institution, which may balk at the risk of making an investment that won’t show returns for a decade or more.
And in this Bloomberg interview with Jigar Shah, the head of the loans program at the DOE, he shares that the government has more access to experts who are familiar with technologies that we’re trying to deploy. That’s because many of them were developed in national labs. So while a private bank may look at a plan for a nuclear reactor and not know which experts to call, experts at the DOE can walk down the virtual hall and speak with the scientists who designed the technology.
In 2022, the Department of Energy received the green light from Congress to up its budget, with an allowance coming from two laws: the Bipartisan Infrastructure Law, and the Inflation Reduction Act. Together, these add up to $393 billion.
This analysis by McKinsey & Co. gives a deep dive into the IRA – some key information: The Inflation Reduction Act invests in a variety of sectors, but most of the budget is reserved for energy projects.
Funding is dedicated to bringing the manufacturing and development of clean energy technologies into the U.S., rather than outsourcing to other countries to build things like solar panels.
Drilling down even further, we can see what kind of clean energy projects this funding goes towards. There are many different areas the budget is earmarked for, and many specific line items can be grouped into themes. The main themes are batteries and renewables, clean electricity, carbon, and nuclear energy.
In theory, this budget shows us the roadmap towards our clean energy future. But while this budget shows what funding is available to spend, it doesn’t show what the DOE has spent.
In Jigar’s interview with Bloomberg, he shares that his office can only put out a call for loan applications and encourage industries to participate – but some are slower than others to get in the game. For example, there’s funding available to monitor and reduce methane emissions from the oil and gas industry, but many involved in the industry weren’t immediately aware of the program or interested in it.
The Department of Energy has several tools it can use to spend money, and each of them works in different ways:
To see what projects are actually underway, look no further than the DOE’s recently released investment map. Here we can see that there are significant investments already committed towards battery technologies, electric vehicles, offshore wind, and solar energy.
In the map, you can also see where in the country these projects are coming. While California snags the top spot in terms of the number of projects with 52, Georgia has the highest dollar investment coming in at $32 billion.
The government may not be looking for a financial return on investment the same way a company does, but we are looking for our investments to make some numbers move – specifically, we want the money we spend to drive down carbon emissions. So, how’s it working?
A recent study published by 9 research teams across the US concluded that the IRA will dramatically cut U.S carbon emissions, reducing 43%-48% below 2005 levels by 2035.
They also shared that the IRA wouldn’t be enough to reach 50% below peak levels by 2030, as the U.S. has pledged, indicating that more investment is needed.