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Robinson Meyer:
Hello, it is Monday, July 6, and a year has passed since Republicans in Congress and President Trump passed the One Big Beautiful Bill Act. That pulchritudinous policy repealed many of the provisions in the Inflation Reduction Act, which is, of course, the big climate law passed in 2022 by President Biden and congressional Democrats. It also revealed, crucially, the tax credits for wind and solar energy and the consumer side tax credits for electric cars. I would say this is the biggest event in recent American climate political history. You know, for the first time in 40 years, the U.S. had passed a comprehensive climate law, and then it got repealed by Republicans very quickly. I think it’s driven part of the climate hushing trend, the so-called climate hushing trend, where even Democrats are reluctant to talk about climate change now. And I think it’s seen at least, I don’t know, among progressives, climate advocates, liberals, everyone who cares about the environment and climate change as a partial failure.
Robinson Meyer:
What today’s guest presumes is, what if it wasn’t? A new report out today argues that in the power sector, much of the IRA’s new clean energy construction and emissions reductions remain intact. Even in a world where the Trump administration has passed OB3, the One Big Beautiful Bill Act, and repealed Environmental Protection Agency regulations restricting fossil fuel emissions, the glass remains more than half full. That’s what she says. The IRA really did, she says, helped pull ahead new clean energy construction that would not have happened otherwise. And that success has big implications for policy going forward, including whether Dems should restore the solar and wind tax credits next time, when and if they get a majority, or do something else to fight climate change. Well, joining me today is the author of that new report, Lily Bermel. She’s a visiting fellow at the Columbia Center on Global Energy Policy and a former climate policy advisor at the State Department. She was on John Kerry’s climate diplomacy team during the Biden administration. We talk about what she found in the new report, why she thinks the glass is more than half full, why the IRA might not have produced the benefits that we thought it would at the moment it was passed, and what she changed her mind about as she looked at the reality of climate policy’s landscape today. I’m Robinson Meyer, the founding executive editor of Heatmap News, and it’s all coming up on Shift Key. Lily Bermel, welcome to Shift’s Key.
Lily Bermel:
Thanks, Rob. Excited to be here.
Robinson Meyer:
Okay, so let’s get right into it. You write in this report, which we have a story about on Heatmap.news today, I encourage everyone to read. You compare two scenarios in this report. One is the, let’s say, the world of the Biden administration, where the Inflation Reduction Act is law. And the other one is the world we live in, where the One Big Beautiful Bill Act passed, repealing swaths of the Inflation Reduction Act. And you write in this new report that the Oba scenario preserves 74% of new and clean energy capacity, 71% of new clean generation, and 67% of emissions reductions that we would have achieved had the IRA stayed on the books. And so my opening question for you is, why are you so sunny?
Lily Bermel:
Why am I so sunny? Well, great question. That is definitely a part of my personality, but I wanted to get some data to book it up to see if it was really real or not. I think last year, last summer, when the Republicans were doing their reconciliation process, really kind of taking that hatchet to the IRA, it was a distressing time and there were different narratives that emerged and were confusing and dueling even. The IRA was totally dismantled. The clean energy transition is doomed, but you also had that the clean energy itself is unstoppable because it’s the cheapest. And so a couple of things caught my attention. I actually remember Jigar Shah saying that if we had just skipped the IRA and gone straight to, I’ll say OB3, we would be shouting from the rooftops. It preserved the majority of the tax credits, which is where most of the IRA’s decarbonization benefits were coming from. And it was really just wind and solar that got the short end of the stick.
Robinson Meyer:
And electric vehicles.
Lily Bermel:
Totally. Yes. Thank you. In the power sector, specifically.
Robinson Meyer:
Yes. In the power sector, it’s all about wind and solar.
Lily Bermel:
Yes. Exactly. So this report is just on the power sector, the backbone of the energy transition. And it’s really wind and solar that get their tax credits removed in the coming decade. And then there was restrictions placed on the rest. And so in wanting to just myself kind of have a clearer understanding of what’s happening, my curiosity got the best of me. I reached out to the Energy Innovation Team and asked for some data. And they provided me with two scenarios. So the first is what you outlined, say the prior policy environment, which is the full IRA, and also those EPA regulations. So it’s the tax credits and the regulations.
Robinson Meyer:
What exactly is in these two scenarios? Because I think crucially, you’re not comparing worlds that never existed. You’re kind of comparing like the entire regulatory and legal framework created by the Biden administration versus the world we live in now.
Lily Bermel:
That’s exactly right. So the first scenario I call the IRA trajectory, but it’s more than the IRAs. The IRA plus the power plant regulations. And you can imagine that’s the like December 2024 world, that policy frozen in place. The second scenario is with the one big beautiful bill act, OB3, and then all of those regulations taken away. And so that would be maybe the July 2025 policy environment. Models are a camera of a moment in time with a trajectory or projection of what you think is going to happen going forward from that. And so importantly, the model does not include all of the coordinated executive branch actions that the Trump administration has done on wind and solar since then. And that’s really important because these numbers are model numbers really distinct from real world outcomes.
Robinson Meyer:
Your report is titled “Glass Half Full.” And I think the story in the power sector that you tell in this report is a much more upbeat one than maybe people were expecting after OB3 passed.
Lily Bermel:
Yep. So that basic question is what actually survived. And it technically has two different ways. It’s how much of the gain survives. So that’s your clean energy, your emissions reductions, and how much worse is that fossil outcome. And so we see that the glass is half full if you’re within 50% of the benefits preserved or more, or fossil is less than 50% worse. The top line is that more than half of those benefits of the prior policy environment survives across the board. It’s only onshore wind that dips below that 50% line. And so we have about three quarters of clean capacity will still get added over the coming decade, and about two thirds of emissions reductions will still occur as well. And then on the fossil side, the outcomes were less than 50% worse at threshold. We see fossil capacity is only 4% more in the OB3 scenario than the IRA trajectory, and it’s fossil generation that surges 19% more on average over the coming decade compared to the IRA trajectory. So it’s about the same fossil fleet, but doing more.
Robinson Meyer:
So if I’m thinking about these two worlds, and I want to get into the epistemological world of the models in a moment, something that I’m sure quickened all of our listeners’ pulses just to hear. I mean, in some ways, it’s not even as the glass half full or half empty. It’s that the glass is detectably more than half full. In kind of all these three big questions, we’re going to be adding most of the clean energy capacity, the new build, new wind and solar farms and batteries that we anticipated adding in IRA world under Trump world, held constant basically for executive interference that’s very hard to model and changing by the week, but which you can follow on a day-to-day basis at Heatmap.news. We’re going to preserve two-thirds, roughly, of the emissions reductions we expect to see under IRA world. And we’re going to not add that much new fossil. In fact, we’re just going to run the fossil fleet more than we would have under a world where we kept the IRA on the books and maybe built that kind of extra 25% of solar and wind and battery capacity. Is that a fair description?
Lily Bermel:
Yes. Yeah, you said that really well. One detail on that fossil fleet is that while the size of the fossil fleets between the scenarios are relatively similar, the composition is quite different. And so this is where it’s important to remember the scenarios include the impact of the regulations as well. So without these power plant regulations that encourage faster retirement of coal power plants, what we see is that coal still retires, but it retires more slowly today than it would have if the regulations were still on board. So therefore, the fossil fleet itself is just ever so slightly larger, but it’s more coal heavy and therefore more emissions heavy as well.
Robinson Meyer:
I mean, it’s interesting because this is a mechanism we talk about all the time back during the Biden administration that I think has a little bit been lost to time, which is that the IRA, correct me if this is a misunderstanding, but the Inflation Reduction Act, because it discounted the cost of clean and because it discounted various carbon capture technology, made it far easier for the EPA to impose strict air pollution standards on coal plants. And it was actually those standards that would have shifted the composition of the fossil fleet from a coal and gas fleet to a primarily gas fleet. And with the IRA off the books, and of course, with the standards off the books, too, it’s much harder now. We’re going to run these coal plants for much longer than we would have in Biden world. Is that right? Or am I missing something important?
Lily Bermel:
Yeah, I think that’s generally right, that the coal is stickier. It stays around for longer. It’s the gas that fires and runs way more and helps to fill in that clean shortfall. I think the Biden administration viewed the regulations as a nice complement to making clean cheaper. And that kind of allowed them to say, as we build more clean, we can generate less of fossil. But there is a really important distinction between building clean and replacing fossil capacity and the reliability services it adds to the grid. When you build clean energy, you can decarbonize in a shallow or in a deep way. To me, I think about shallow decarbonization as adding clean energy that meets new demand and that helps the economy grow and helps meet demand growth. It kind of offsets emissions that would have happened if that was met by fossil fuels instead. A deeper decarbonization is clean energy that is built that mitigates emissions that have already been happening from fossil plants that are already running. And so just because you’re building clean energy, you’re often doing the former and not the latter there.
Robinson Meyer:
It’s interesting. It’s such a good comparison between the two in the power sector. And I think it also helps to like maybe put it in the context of countries, right? What we see in China so far has generally been shallow decarbonization, where they build this enormous amount of clean energy. It’s extremely impressive. And historically it has allowed them to maybe not run their fossil plants as much as they wanted going forward and i think in like very recent quarters we have seen that clean energy begin to eat away at the existing fossil generation and that’s what a deeper decarbonization looks like that’s what it looks like when you’re not only building enough clean to meet new growth but actually building so much clean that you’re out competing the fossil that already exists
Lily Bermel:
Yeah, I think that’s spot on. And it’s Lauri Myllyvirta is one of my favorite China analysts who has found that like clean energy is what’s driving China’s economic growth. And that’s why their coal fleet is generally still there in the size that it is. I think the other distinction to make on shallow and deep is that different clean energy technologies kind of can do one or the other. And so the services and the gains that wind and solar and storage bring to the grid when you deploy them do not provide the same reliability services that gas, that coal, that nuclear or geothermal will give. And so as you are scaling variable renewable energy penetration on the grid, you actually sometimes need more gas capacity to meet its intermittency and to support it from happening. And so simply deploying wind and solar alone does not achieve you that deep decarbonization. You can’t wind and solar your way out of the fossil fleet. You need that set of clean firm technologies to replace it, to offset it, to eventually retire it. But that’s something far in the future.
Robinson Meyer:
And clean firm here is anything that can run 24-7, is relatively reliable, is independent on the weather or the sun, and is dispatchable too, right? You can basically, as a grid planner, say, hey, we need this power plant to go on and turn it on and it provides power. And it doesn’t need to be like a battery or something where it had to have saved up fuel.
Lily Bermel:
Yeah, I think about firm energy as that always-on, always-available energy generation. And then when it’s clean, it’s low emissions or no emissions. You know, traditional firm powers is that coal and gas. Interestingly, I don’t think of storage as firm power because that’s more about shifting when the energy is generated rather than it always being available. So therefore, it’s interesting to realize that it’s gas is what firms renewables less so than storage. Storage kind of supports a wider time span horizon with which wind and solar can generate energy. But it’s what’s on the books right now is coal and gas and later other clean technologies will be able to firm renewables as well.
Robinson Meyer:
This report only looks at the power sector. And so arguably, some of the worst damage of repealing the IRA happened in the transportation sector. We’re not talking about the transportation sector. But when you look at the power sector, I think we’ve spent a long time mourning the disappearance of the Inflation Reduction Act. And even if its repeal is going to be more for the transportation sector than the power sector, the idea that we’ve only lost, say, 25 percent of the emissions reductions that we expected, I think, will be surprising. So why didn’t repealing the IRA have a bigger effect on U.S. emissions?
Lily Bermel:
I think this comes down to the maturity of wind and solar, the power of market forces to drive the energy transition, and some functionalities about how the grid and deployment basically works. So to take those each in force, or in turn, we know that wind and solar are very mature, are cost competitive. Advocates in industry have been saying that for a while. And so I think removing the tax credits and seeing that still, on average, three quarters is getting built speaks to that and is a testament to their resiliency, their cost effectiveness, the benefits that they have, and the fact that they make up 95% of the interconnection queue. So that’s one reason. I think the other is that because of the safe harboring of the wind and solar tax credits, you do see a bit of near-term deployment locked in. And Rhodium Group actually has similar projections that mirror mine. In their taking stock report, they show that across their projections, their low, medium, and high emission scenarios, that the deployment that’s happening through 2030 is the same. And so I kind of like to think about the grid in terms of light years, how it operates, where what you see today reflects what was decided years ago. So therefore, the things that get deployed today, construction decisions, permitting decisions, were made many years ago, and that kind of flows through. So there’s a lot of momentum, I think, on clean energy’s side and a lot going forward in terms of cost competitiveness.
Robinson Meyer:
And so in that world, I guess, did passing the IRA matter to the grid’s decarbonization at all? Because I’m listening to what you’re saying, And what I’m hearing is, well, wind and solar are really mature. We were building up a lot of them. Did we basically build up a huge bolus of wind and solar projects that are now working their way through the system between, say, 2021 and 2024? And they were all safe harbored and they’re all going to get built or many of them are going to get built. And so in some ways, the IRA already gave its gift to the wind and solar industry and it didn’t need to extend these tax credits forward. And kind of it already essentially did because of how the safe harbor rules work. Or is it just that AI and load growth have driven up power prices so much that developers are going to go out and build wind and solar anyway? The IRA actually turned out to be a little extraneous to this story because it turned out that everyone was going to build wind and solar as much as they could because power prices are shooting through the roof in any deregulated market.
Lily Bermel:
Yeah, I think that’s a great question. And of course, the IRA was enacted before the huge energy boom that we’re seeing right now. And in some ways, the way you phrase that question makes me think about how, as the wind and solar tax credits are phasing down, you have demand growth surging, and that’s acting as the demand pull, kind of in some ways to replace the IRA tax credits. I mean, I think the IRA was hugely beneficial in that when I was working on the Clean Investment Monitor, we just saw investment come off the sidelines and explode through the roof in terms of the amount of projects being stood up and investment flowing through the economy. And that was very tangible and very real. The huge value add of the IRA, too, was that it put down a lot of public investment to down payment in innovating and commercializing the set of other technologies that we need to decarbonize. And so that’s in geothermal, that’s in nuclear restarts, that’s in carbon capture and a whole lot more. And so what’s interesting about this model is that because it comes with its own assumptions about costs and performance, the model itself actually does not pick up on these clean firm technologies deploying at all in the coming decade.
Robinson Meyer:
That’s something so striking here is that we put all this work in. I mean, during the One Big Beautiful Bill Act legislative process, I wrote an op-ed. I wrote tons of pieces for Heatmap, basically saying the Senate and Congress needs to keep these tax credits for clean firm technologies like geothermal and fusion and fission on the books because they really matter. And what your model shows is like that capacity never comes online like it does not come online in 2030 it doesn’t come online in 2035 it is simply not a major player in your model.
Lily Bermel:
That’s an interesting kind of embedded assumption in the energy innovations model where just the projects don’t seem to pencil out. And that’s where we get to really bifurcate between what a model says and what we’re seeing in the real world, because these are two really different things. And I’d argue that commercialization of these technologies is happening faster than we expected, ranging from the progress that we’re seeing on geothermal with Fervo’s IPO, a lot of offtake that they have, construction of a project, to what we’re seeing in nuclear, where two weeks ago, the Office of Energy Dominance Financing announced, I think, $17.5 billion, in loans to restart new nuclear plants. That’s multiple gigawatts that we did not expect at the time that this model was created that will now come online and help do the job. And then we also have the hyperscaler attention and willingness to pay to commercialize these technologies to invest in the grid and to build clean energy fast. That’s tangible. That’s a lot of capital. And that is doing a lot of work to create the environment that these technologies need to come to bear.
Robinson Meyer:
So one of the big findings in the report is that if you look across technologies, you look across different questions that you’re curious about. The clearest bad news is in onshore wind. It is only onshore wind that fails to build 50% of the capacity in a Trump world that it would have built in an IRA world. And I guess maybe there’s a certain argument for this because people would go, well, of course it does. The Trump administration doesn’t want to build any wind at all. They hate wind. For whatever reason, they’ve decided wind should lose the culture war. But wind actually was already struggling by the time we were halfway into the Biden administration. I mean, I think 2020 was the best year for wind construction ever, and it’s kind of been falling off since then. Why is onshore wind so harmed in the IRA repeal scenario or the OBBBA scenario in your model?
Lily Bermel:
Yes, I think you already indicated that it is a technology that just seems to struggle anyways. It has really long development timelines. It needs a lot of transmission to connect to the grid. It has … it’s just very capital intensive. It has high upfront costs, high project finance costs and whatnot. So that helps make it very credit sensitive. So when you remove the tax credits, it’s hurt by that. But it also has other problems that a tax credit won’t fix anyways.
Robinson Meyer:
In other words, it was already struggling. IRA was going to help it because those tax credits were actually meaningful to helping projects pencil out. But without the tax credits penciling out wind, it’s just not getting built.
Lily Bermel:
Yes. And this is onshore wind in particular. Offshore wind is interestingly like less credit sensitive because it’s more connected to state procurement mandates and has kind of other drivers pushing it forward.
Robinson Meyer:
That’s interesting. Does your model account for all the offshore wind skullduggery that’s happened?
Lily Bermel:
The model doesn’t take into account any of those executive branch actions, but the report itself includes kind of a deep discussion of how real world events will change the model’s outcomes. And it looks at three different time horizons. It looks at what the IRA expectations have come to pass. It looks at the near term, like will OB3 projections and outcomes bear? And on a more medium term, What does it look like as well?
Robinson Meyer:
Reading this report and seeing basically that repealing the IRA, at least in the power sector, and again, we’re talking about the power sector, doesn’t have this catastrophic effect on our emissions trajectory. It doesn’t have this catastrophic effect on how much wind and solar we build. Now, of course, I will miss the wind and solar that gets built. I’m sure developers will, the climate will. We’ll all mourn this 25% of emissions that we could have had that we didn’t have. Like reading this report, it doesn’t sound like we’ve lurched from beautiful, verdant, abundant, cheap electricity world into dark, evil, polluter world. It sounds like we’ve taken a wrong turn somewhere and it’ll take us some time to get back onto the right highway, but we’re not locked into an evil world now. And that suggests that the Inflation Reduction Act was maybe not as important as we thought it would be. And so my question to you is like, When the IRA passed, we talked about how it was going to reduce economy-wide emissions by like 40 to 48 percent by 2035. Would it have achieved the huge emissions reductions that we thought it was going to achieve when it passed?
Lily Bermel:
I don’t think it would have achieved the full amount that we would have expected in the power sector. Jesse Jenkins put out a really prescient report when the IRA was enacted that said 80% of the IRA’s emissions benefits hinged on could we build transmission faster. And guess what? We have not built it faster at all. We’ve built less and less of it and more slowly. And so John Bisling, who you had on your podcast recently, put out this really great report with a lot of other people, and they looked at all of the IRA modeling. And what they found was that later IRA models projected less and less benefits that would have come as people kind of realized like, oh, shoot, we have a lot of supply side constraints. And so I think your question is very sharp. Because the IRA would not have fully come to pass, that doesn’t mean that the IRA wasn’t good or wasn’t worth it. It’s that we have other problems. Basically, by solving one problem, by making clean energy a little bit cheaper and by incentivizing the demand of it, we therefore exposed how supply-side constrained we are and how awful and burdensome the permitting barrier process is.
Robinson Meyer:
In other words, because the IRA sort of solved any financial issue you would ever have building wind and solar, we discovered how bad the non-financial issues are or how many supply side constraints create financial issues for projects, regardless of whether the, you know, kind of facial economics are favorable or not.
Lily Bermel:
Yes, I think that’s right. And right, Heatmap does an excellent job of this on the local side, where you guys track on the local ordinance level, like how these restrictions and bans against wind and solar are completely proliferating. And so that makes me think that this issue is only getting worse because you have the federal level, you have all the national laws that really constrain build out. That adds cost. It makes it more expensive to build the longer it takes. That’s an issue. And at the local level, we have it building up as well.
Robinson Meyer:
Given that the IRA, in retrospect, in the power sector, kind of resolved any economic issue you would have making a project pencil out and revealed all these non-economic issues that actually constrain development. We are now looking at a political environment where we’re switching from mourning the IRA to saying, okay, what should happen next? And my colleague, Emily Ponacorvo, recently wrote a story about this question. But I think one of the big questions going forward, especially if Democrats take Congress at the end of this year is, well, should they fight to restore the tax credits? I can even see a world where restoring the tax credits becomes something people insist on to get permitting reform or something. After writing this report, did you come to the conclusion that Democrats should restore the wind and solar tax credits? Is that the most urgent priority for climate policy?
Lily Bermel:
In writing this report, I became quite confident that I don’t think it’s worth the bang for buck in restoring those wind and solar tax credits and instead that the supply side constraints are the real issue that we need to focus on. I did this lag analysis where if you take a given year, say 2031, and you see that the IRA trajectory would have deployed like more than 300 gigawatts of solar, how many years later would the OB3 scenario do that? There’s only a two and a half year lag or gap. And so in restoring the clean energy tax credits, you are only buying back two and a half years worth of deployment, which, at least for me, was a lot smaller than I had thought. Meanwhile, both scenarios have a literal cap in them about how much they can build and how fast they can build it. So even if you buy back that little two-and-a-half-year average annual lag, you’re going to run up to the exact same ceiling. So restoring the tax credits brings you closer to that ceiling, while permitting reform will completely lift the ceiling and be a rising tide that lifts all boats.
Robinson Meyer:
Can I ask, do we know that permitting reform will lift the ceiling? I mean, what you’ve done is create an ingenious modeling device that basically tries to account for real world constraints, which I appreciate because as we’ve been talking about, the awareness that we even need to do this in energy models, I think, was maybe not as there as it has been dawning on the community over the past five years. But do we know that if we pass permitting reform, I mean, we don’t even know what’s in the legislative package. So I guess let me ask you, like, what would need to be in a permitting reform package to raise the cap on what we can build in a meaningful way?
Lily Bermel:
Yeah, I think there’s a suite of laws that need reform to help speed the process of building. And so, of course, that’s the National Environmental Policy Act, Clean Water Act, Section 401, Federal Power Act, the National Historic Preservation Act, you know, rules to make it so that you don’t have like 10 years to litigate a case. And then the concept of permit certainty, which the Freedom Act on the Senate recently introduced to kind of protect against what the Trump administration is doing in revoking permits. So I can imagine a package coming together with components across the board from that. And we do a bills in Congress, both sides of the House or both sides of the chamber that have elements of all of that. So I think it is coming together. I do think there’s two ways that permitting reform does accelerate clean energy and help reduce emissions. The first would be raising that ceiling so that more can get added to the grid, so that the grid itself can grow, so that more transmission can get built. And the second is shortening the amount of time to build and to connect to the grid itself. And then because clean energy, it’s more permitting exposed, it needs more infrastructure from scratch. The queue itself is 95% clean, like it will net benefit clean.
Robinson Meyer:
You write in the report, the American energy transition now operates in a different macroeconomic and political environment than the one that shaped climate policy debates in the late 20 teens and early 2020s. I thought that was such an interesting claim. Can you speak a little bit more about that?
Lily Bermel:
Sure. I think I say the IRA was built and it was sold, and later it was attacked as a pure climate law. It was the product of a democratic trifecta. Interest rates were zero or near zero. Very low deficit anxiety. We were economically choosing to prioritize jobs over costs, and now all of that has changed. We’re living in a cost-of-living politics where affordability is the name of the game. We have huge demand growth that we were not really seeing at the time. Geopolitical competition over supply chains has sharpened and the fiscal space has really become quite exhausted. And then, of course, politically, right, we are now in a Republican trifecta and energy itself is ideologically the ire of both parties. And so I think with that big shift, that for me is one of the biggest telltale signs that you can’t just restore what happened before. That was built for a completely different moment. And to me, the glass half full result should point policymakers towards building beyond what we have.
Lily Bermel:
One other thing I’ll point out is that the wind and solar tax credits have been extended and extended for 30 to 40 years on a bipartisan basis. It was then a one-party vote that expanded the tax credit policy from focusing on wind and solar to supporting a lot of different technologies in the full suite of clean energy. It was then one party that affirmed to keep all of those, but that, explicitly tells us that the wind and solar tax credits are no longer bipartisan, that it will take a one party vote to bring them back and the next party, when given the opportunity, will remove them. And so to me, that’s another tell that it will come with great political capital and cost to try to extend them. And that urges the question if it’s worth the political capital to do that. Do we get the emissions reductions in the build out that we want? Is it worth that bang for buck? And so, right, like I’m not working for the CBO. I don’t know the exact fiscal costs. I’m not one of my friends on the Senate negotiating. And so I’ll leave the political strategy to them. But I trust them greatly. But I think it’s a really important question to ask if it’s worth it.
Robinson Meyer:
How much of all the assumptions here are just dependent on continued high electricity prices? Because I’m a little bit worried about a world where we assume the AI, you know, like, it’s funny in environmental policy land right now, let’s say, because on the one hand, you have a group of people who are convinced the AI is a bubble, or going to pop or not economically useful. And we’re not going to talk about that, but we’re going to just say that’s one point of view. And then we have another point of view that basically, when thinking about the future, assumes high power prices are going to remain the norm now, somewhat indefinitely. But in fact, we know the two things are linked. We know that power prices are high because hyperscalers are bidding up for every electron they can get. If power prices were to fall, would we still like to have winded solar tax credits on the books? Or are there certain insurance policies we should try to pass now that would insure us against a world where power prices fall because the last time power prices were high back in the aughts, we made a lot of bets on different technologies. And then a number of things happened, but fracking was one of them. And what wound up happening with fracking was it crashed power prices. And then it turned out to be okay because we got cheap Chinese solar. But a lot of technological bets didn’t wind up panning out because we anticipated a world of expensive power prices and instead we got cheap power prices. Thank you.
Lily Bermel:
My understanding is that the data is quite mixed on whether large loads are directly raising electricity prices or not. The Lawrence Berkeley National Lab has a really great study that they’ve updated over time that shows the impact of large loads on these prices. And in some areas, prices are tracking with inflation up until only super, super recently. So I think the data is mixed there. What your point implies, though, is that, as we discussed, AI is such a large demand and a demand pull for energy? Like, what if that goes away? What if it’s smaller than we expect? Like, are we screwed from that? I don’t think wind and solar tax credits are a necessary insurance against, like, oh, demand growth is less for several reasons. One is that the demand growth that we’re seeing now from AI is very sizable. It’s actually smaller than the demands that will come from electrification, from EVs, from building, from industry. That comes more next decade. So essentially, AI is front running this high energy demand growth scenario. And that’s good because it’s forcing us to think on our toes and react to this now. And whether or not the AI part of it comes to pass, electrification is definitely coming and it’s a larger amount. So I think while, yes, size of the bubble, all of that is like debated. And thank you, economists who are debating that. The demand growth is coming.
Lily Bermel:
And then third is that, again, I don’t think that the wind and solar tax credits are the number one needed thing here. I think, like, in terms of insurance costs, like, we are so much more screwed if we can’t build in this country and build faster. And so I think the argument there still points to permitting reform over the tax credits.
Robinson Meyer:
What did you change your mind about writing this report?
Lily Bermel:
One thing that I think this report really crystallized for me is the role that gas plays in our power system. We see that it’s what fills the clean energy gap because it’s able to generate more. And we see that even as we build more clean energy, when it’s wind and solar and storage, that does not offset the services that gas provides. And I think like anyone who’s focused on mitigating the power sector needs to keep top of mind. They’re like, you literally need a turbine spinning on the grid as like the on switch to keep it on and to keep it functioning. There are only so many technologies that can do that. Gas is the only cost competitive and available technology to do that right now. And that’s why if we want a clean alternative, it has to be nuclear, it has to be geothermal. And down the line, there’s other options as well. And so to me, that helps us realize that geothermal in particular should be the number one public and private investment priority in the coming decades for decarbonization. And I saw a stat recently that geothermal has only received like one tenth of the amount of public support that solar has received. And so even though we’re seeing some success on that side, like it’s not enough. There is so much more that we can do.
Lily Bermel:
I think something else that this report helped me clarify my thinking about was the value of building versus doing things kind of marginally on the side to make things better. There’s a whole set of actually like really cool, innovative technologies like grid enhancing technologies, reconductoring, virtual power plants, demand response. Like there’s a whole set of things now that’s essentially the equivalent of like finding a $20 bill on the street. Like these should be pursued immediately. But recognizing that in order to meet demand growth, which as we talk about is both from AI, but also electrification and heat pumps and EVs and manufacturing, decarbonizing industry, like doubling the size of our grid is table stakes. In fact, like we might need to triple it. And so while all of those energy things should be pursued with like full steam ahead, it’s probably marginal and just like buys a little bit of time for all of the building that we really need to do. And a through line, like a theme that I put in my report is that building actually, is what will help solve our problems on both sides, right? You have to simply build more renewables to close that clean energy gap. And you have to build a clean firm to be able to close the emissions gap. And so to me, that’s the through line here and the way that we’ll decarbonize our power sector.
Robinson Meyer:
Can you give us how you used to feel about gas versus how you feel now?
Lily Bermel:
Sure. I’ll admit that I was raised in kind of climate academia, where I was very excited to go work at the Paris Agreement. And like everything was all about climate change and net zero and 2050 and direct timelines like that. And I think as I’ve learned more practically about how the energy system works, right, you realize that like, oh, you like things take slower than you expect. And you actually have to like add a whole lot of energy, way more than you want. And there’s a lot of building that’s required. And then maybe in a while, we can get rid of some of that fossil. I’ll see you next time.
Robinson Meyer:
Let’s now preserve some of your climate respectability here, as we’ve praised gas and said we shouldn’t bring back the wind and solar tax credits. And if we aren’t using the money on the wind and solar tax credits, of course, we have constrained fiscal space. The budget deficit, unlike a decade and a half ago when people were concerned about it, now seems to be a real problem, certainly driving up mortgage rates. We could just not spend that money at all. Okay. But if we did want to spend some money on climate change and we didn’t just want to do permitting reform, like what do you think we should spend money to do? What should we do instead of wind and solar tax credits?
Lily Bermel:
Great question. And just to provide a little bit of context, Brendan Duke put out a great report last month that looked at, if Democrats are to undo just a portion of the Trump agenda, it will cost the size of Biden’s original Build Back Better proposal. And that is not Trump’s whole agenda. And that is before any additional Democrat spending priorities.
Robinson Meyer:
Is that like the tax cuts? Like basically, if you were to undo the tax cuts, it’s just extremely expensive.
Lily Bermel:
It’s not even the tax cuts. It is healthcare and the tariffs and one other piece. So it’s not the tax credits. So all to say is, not only has the level of debt gone through the roof, the amount of spending demands will be huge. And so we will have to be really picky about what we do.
Lily Bermel:
So your question is a great one. In the report, I think I propose a premise for thinking about it. The first should be, let’s not subsidize the deployment of mature technologies. And instead let’s focus on building out the grid and focus on commercializing the set of innovative technologies that need to come to scale. So there’s a lot of things you can do to build the grid. You can expand existing tax credits on the books, say the manufacturing one for transformers, advanced conductors, transmission equipment, other power electronics that will really help relieve bottlenecks and supply crunch that we’re facing on that side. Some people support a transmission investment tax credit. That makes sense to look into. And then those technologies that we need really to deploy in the 2030s to have ready. So long-duration energy storage, geothermal, nuclear, carbon capture, you know, fusion maybe one day will happen. And that can be done through procurement that the government does. And then, of course, federal loan authority. And the Department of Energy Dominance Financing obviously plays a huge role here. And so wanting to continue to support that is really key. And it’s been great to see that being done on a bipartisan basis so far.
Robinson Meyer:
Your report says so clearly, build, build, build, how we’re going to achieve decarbonization is developing, you know, this next generation of clean firm technologies, be it nuclear or geothermal or fusion. And only building out more transmission can unlock the degree of renewables that we would need to see in order to really begin shipping away at the huge amount of fossil that’s in the system. When you look at leaders in the environmental policy space, when you look at what organizations are telling their Instagram followers and the people who ostensibly look to them, do you feel like they are communicating the importance of building as much as they should be?
Lily Bermel:
Yeah, I think it’s becoming more of a priority. I think people are realizing how important it is. And again, that Jesse Jenkins report that says we’ll lose 80% of emissions reductions if you don’t build transmission more like that is quite eye opening. So I do hope that my report can be a nudge in that direction, explaining, you know, really at a detail level and a technology level, like why we need to build more and why building more is the answer.
Robinson Meyer:
So you feel like it’s getting better. But do you feel like it’s where it needs to be now?
Lily Bermel:
Probably not. There’s always room for improvement. That’s the counter to glass out full. I’ll say I’ll be optimistic, but there’s a lot more work to do for sure.
Robinson Meyer:
OK, very politic answer. One more question, which is after all that you’ve come to understand about the IRA and looking at these reports, looking at what it would have done, looking at what it didn’t do. I think when the law was first passed, a lot of us thought, wow, what a well-designed law. It’s going to stay on the books. And then after the Beautiful Bill Act passed, a lot of us thought, oh, my gosh, it wasn’t well designed at all. What a disaster. It didn’t survive in the House. It didn’t. There were this group of 14 House Republicans who were lined up to support it. But as soon as President Trump made it clear that he wanted to get rid of this law, they got rid of it.
Robinson Meyer:
Actually, this was a disaster. But looking at your report, I don’t know, I’m of two minds. On the one hand, I look at your report and I go, look at this, three quarters of the clean energy capacity we would have had, two thirds of the emissions reductions we would have seen. Seems like the IRA did a pretty good job. On the other hand, I go like, well, but I look to 2035 or I look to 2030 and those clean firm tax credits don’t seem to be doing a lot. Now, we know that in the real world, it seems like they actually have a better track record that we’re commercializing technology faster than the models think we will. But there’s a reading of events here where like the IRA spent a lot of money to accelerate trajectories that we would have hit within a year or two anyway. Was the IRA a well-designed law? Do you think it did what we thought it was going to do when we passed it? Or does doing this, you know, after analysis report on it make you think, actually, we should have done a lot of other stuff instead of the IRA during this moment?
Lily Bermel:
Yeah, I think about how our understanding of what our best foot forward is with policy changes over time. And after, what, 20 years of trying to tax carbon and make carbon more expensive, we were enlightened to instead make clean energy cheaper. And so that was like the moment that the IRA was riding on. It was novel. It was very cool to design an industrial strategy and policy around clean energy. And that’s where a lot of the IRA came from. Again, by kind of solving for that demand side of the equation, we realized, oh my gosh, the supply side morass is so massive that we are just running and hitting our head against the wall over and over again. Also, right, the rise in energy demand, like our own realization about it came after the IRA was passed. So I think now that we are in a different moment where we have more data to prove that how, mature wind and solar are and how cost competitive they are, and we have a better understanding that there’s a whole other suite of technologies that we need to commercialize and innovate and scale, that then our focus, I think, naturally continues to move on. So I don’t think anything about the IRA was a mistake or not worth doing, right? We learned a lot from it. It did spur a lot of investment. It accelerated things. And now we’re realizing, oh my gosh, like, look how cool it is that these technologies are mature. And now let’s go do that for the rest of the set of clean energy
Lily Bermel:
technologies that we need and that we want to decarbonize the power sector.
Robinson Meyer:
When you look at your the set of technologies that have matured now, one thing we often hear from Democrats, one thing we hear, I have to say, constantly heated map events from elected Democratic representatives is, well, clean is cheap and cheap is clean, right? Right. Clean is the cheapest it can be. Clean, clean. There’s a bit of dissonance, I have to say, in this message that clean is cheap and also that we need to restore the subsidies for the thing that is allegedly cheapest because it was truly cheapest. We wouldn’t need to subsidize it. Do you believe after writing this report that clean is always the cheapest option?
Lily Bermel:
Sure. And I think you are so spot on in saying that. I’ll flag that my report itself didn’t look at costs and was just looking at deployment levels. But it did encourage me to look exactly into that question because I wanted to think through what are the headwinds and the tailwinds that the clean energy sector is facing. So obviously, we’re getting a lot of tailwinds right now from the Trump administration directly, also from persistent high interest rates and other things like that.
Lily Bermel:
A tailwind that people cite over and over again is how cheap clean energy is. And in looking into it, again, to ground truth that, I realized that clean is cheap. It’s comparatively cheap when it’s freshly getting built. So new solar compared to new gas, the solar will be cheaper. But in the really narrow context, when that market or that region has enough reliability already, if it already has the transmission built, and if it has a relatively low amount of solar, so therefore the solar is like value add. And in other moments when those conditions are not met, clean is not necessarily like automatically cheaper. And when you compare new clean to existing fossil, clean doesn’t always win out there either. And so I think that’s really important to know and, of course, argues for doing things to make clean cheap. I think it still supports the fact that clean is very competitive, but I think we really need to dismantle the thinking that says clean is always cheapest because it’s simply not. The study in the data that’s most often cited, which is the Lazard’s levelized cost of energy, it doesn’t take into account the grid costs and the systems costs that it takes to connect renewables to the grid. And it compares apples to oranges and all of these things. So again, clean is relatively cheap. Clean is super competitive. It’s not 100% always the cheapest.
Lily Bermel:
That’s really important to know. And it’s also like, okay, that gas is cheap, too. And that gas is what’s being used, because we want whatever energy is cheapest. And when gas is cheap and getting added to the grid, that will lower the cost of electrification, like that still helps support our goals. That’s still, yeah, lowering the cost of electrification is useful for decarbonization, and gas helps firm solar and wind and storage.
Robinson Meyer:
It’s funny, the Lazard levelized cost of energy, it’s if we did a, you know, levelized cost of calories.
Lily Bermel:
That’s such a good analogy.
Robinson Meyer:
It would tell you basically that what you should be eating at all times is like oatmeal cooked in canola oil. Yeah. You know, and it’s be like, you know, oatmeal cooked in canola oil, man, nothing delivers cheap calories like that. You can go to Costco and walk away with tens, hundreds of thousands of calories for like 10 bucks, you know, tomorrow. But you actually can’t exclusively eat oatmeals cooked in canola oil. You need other nutrients. You need other parts of your diet. Totally.
Lily Bermel:
Yeah. It’s like, how soon would you die if that’s the only thing that you ate? Yeah, exactly. How soon would the grid fail if you just completely only relied on wind and solar and didn’t have firm capacity, which one day will be met with clean energy?
Robinson Meyer:
That’s great. Lily Bermel, thank you so much for joining us on Shift Key. This was great.
Lily Bermel:
Thanks, Rob. So happy to be here.
Robinson Meyer:
And that will do it for us on Shift Key today and on Shift Key this week. We’ll be back next week with a new episode of Shift Key. But if you miss us, remember, you can go to heatmap.news right now. Go to the newsletter button in the tab and subscribe to Heatmap Daily. It’s the new daily on weekdays newsletter that I write with my analysis and thoughts on the day’s biggest climate and energy news on the biggest news and kind of the new electric economy. Me. It’s like getting an email from me to you every evening. It’s fun. I’m enjoying doing it. And you should go sign up right now. Heatmap.news. Click newsletters. Subscribe. Of course, you should subscribe to all of our newsletters at Heatmap, including Heatmap AM written by my colleague, Alexander Kaufman. Until then, Shift Key is a production of Heatmap News. Our editors are Jillian Goodman and Nico Lauricella. Multimedia editing and audio engineering is by Jacob Lambert and by Nick Woodbury. Our music’s by Adam Kromelow. Thanks so much for listening. See you next week.
