This article was originally published in the World Resources Institute's Insights blog. Read it here.
The U.S. Inflation Reduction Act (IRA) of 2022 provides historic investments to address the climate crisis and accelerate America’s transition to clean energy. Not only does the legislation put the United States closer to its target of reducing emissions by 50 percent by 2030, but new research shows it also has the potential to deliver massive economic benefits.
Research from WRI, with analytical support from BW Research, finds that achieving the goals of the IRA — and going beyond them — can create millions of new jobs in the United States. In fact:
- The study finds that federal policies relying on a combination of tax credits for low-carbon technologies (as included in IRA) and infrastructure investments (as included in the Bipartisan Infrastructure Law (BIL)) can generate an additional 900,000 net jobs by 2035, compared to a reference scenario without these laws.
- Additional federal policies that bring U.S. emissions down to net zero by 2050 can create an extra 2.3 million net jobs by 2035, compared to the reference scenario.
- Manufacturing clean energy technologies domestically can provide even greater job benefits — up to 5.7 million additional net jobs by 2035 under a net-zero emissions pathway.
While not all sectors and regions will reap the benefits of these jobs, federal policies — including provisions in the IRA — can ensure that the clean energy transition does not come at the expense of some workers and communities.
U.S. job growth under different emissions scenarios
Building on previous WRI analysis, our research estimates potential economic impacts that different emissions-reduction scenarios may generate by 2035:
- The advanced tax credit (ATC) scenario includes tax credits for various low-carbon technologies and increased spending on climate-friendly infrastructure. The policies in this scenario closely resemble the clean energy tax credits of IRA and infrastructure spending contained in the BIL. This scenario reduces emissions by 43 percent by 2030 and 63 percent by 2050, compared to 2005 levels.
- The net-zero (NZ) scenario builds on the ATC scenario by adding sector-specific performance standards and an economy-wide net-zero emissions cap, required to achieve the U.S. goal of net-zero emissions by 2050.
- The ATC and NZ scenarios are compared to a reference scenario (RS) that includes federal policies and state-level climate policies that existed as of May 2021.
*Policy assumptions for the different scenarios were decided in 2021 and several climate provisions included in the 2021 Bipartisan Infrastructure Law and 2022 Inflation Reduction Act are modeled in the mitigation scenarios. Please see Table 1 and Technical Appendices B–C in WRI’s Building Blocks analysis for more details about individual policies included under each scenario.
Our analysis reveals that the NZ emissions scenario results in the greatest job gains, adding 6.5 million net jobs in the U.S. energy economy from 2020 to 2035, 2.3 million more net jobs added than the same period in the RS. The ATC scenario leads to a net increase of 5.1 million jobs, 900,000 more net jobs added than in the RS.
These two scenarios do not account for the additional economic benefits generated by incentivizing domestic manufacturing of clean energy technologies and their supply chains (see discussion below).
Summary of employment impacts across sectors by scenario, 2020 vs. 2035
Energy Economy Sector/Subsector
2035 - RS
2035 - ATC Scenario
2035 - NZ Scenario
|Distributed Solar PV||395,300||496,642||496,893||496,642|
|Transmission & Distribution||1,877,272||1,908,737||1,974,559||2,057,771|
|Alternative Vehicles Infrastructure||16,732||117,132||155,950||244,949|
|Net Change in Employment (2020-2035)||4,223,079||5,093,286||6,476,336|
Notes: ATC = advanced tax credit; AV = alternative vehicle; ICE = internal combustion engine; NZ = net-zero; PV = photovoltaic; RS = reference scenario. Table shows direct, indirect, and induced jobs. Direct and indirect employment numbers represent estimates of domestic jobs generated in the energy economy due to the spending modeled across these sectors, while induced jobs represent estimates of jobs supported by energy economy workers spending their income in the general U.S. economy.
The “Others” category includes sectors like industry, waste, technological carbon removal, agriculture, and natural and working lands. There are no changes in employment numbers for these sectors in the reference scenario as the analysis did not model any spending estimates for these sectors for the reference scenario. Additional details on each sector and our sector assumptions are included in the text of the report and appendices.
**Coal and nuclear generation, ICE vehicles, and fossil fuels witness decline in employment.
As US emissions decline, where will jobs grow?
The largest job increases associated with low-carbon development are seen in the buildings and electricity sectors.
The building sector adds 4.5 million and 4.6 million jobs in the ATC and NZ scenarios, respectively, between 2020 and 2035. In comparison, 3.5 million jobs are added in the RS during the same period. Improving the energy efficiency of buildings and advancing building electrification are the most labor-intensive of all clean energy measures and generate local construction jobs in every part of the country.
The next-biggest job-creating sector is power generation, where federal policies and investments to generate zero-carbon electricity and modernize the electric grid lead to 2.5 million and 4 million net jobs by 2035 in the ATC and NZ scenarios, respectively, compared to 1 million net jobs added in the RS.
Which sectors will lose jobs as the US shifts toward clean energy?
Despite net job growth across the economy, decarbonization will cause jobs to decline significantly in some sectors.
The transition from internal combustion engine vehicles to electric vehicles (EVs), for example, leads to a net loss of 1.4 million and 2 million jobs by 2035 across the transportation sector in the ATC and NZ scenarios. The job gains associated with EV battery manufacturing and charging infrastructure deployment are not large enough to offset the jobs loss associated with phasing down internal combustion vehicles. EVs are expected to take less labor to manufacture, assemble and maintain than traditional vehicles and will also require a shift in the infrastructure associated with vehicle fueling. This will mean fewer jobs across auto parts manufacturing, vehicle assembly, car dealerships, vehicle maintenance and repair shops, and gas stations.
Significant job loss is also possible in the fuels sector, concentrated in petroleum, natural gas and coal mining and extraction, as well as their wholesale trade, distribution and transportation. Our analysis estimates a net job loss of 900,000 and 1.2 million by 2035 across the fuels sector in the ATC and NZ scenarios, respectively. Even though there is growth in biofuels and blue and green hydrogen employment, it is less than the loss in fossil fuel jobs driven by declining oil and natural gas consumption from transportation, building electrification and efficiency improvements.
Many jobs in the energy economy that are neither new nor declining will also change substantially, often requiring new skills and certifications. Workers from HVAC to utility-scale energy generation will see new technologies emerge and require continued upskilling to keep up with these changes.
As demand for high-emissions industries shrinks, the United States risks leaving behind workers and communities dependent on those industries. Smart policy can prevent this from happening.
How to ensure a just and equitable transition in the United States?
Federal policies such as domestic manufacturing and prevailing wage requirements can help address potential job loss from decarbonization and creates a foundation for high job quality in the growing low-carbon economy. These policies can help ensure that all people in all communities can thrive in a net-zero emissions future:
1. Incentivizing domestic manufacturing
Fortunately, the IRA contains several provisions to ensure a "just transition."
In the case of tax credits for clean electricity generation, IRA provides a bonus credit for projects that meet domestic manufacturing requirements (for instance, use domestically produced steel, iron and manufactured products). The IRA’s clean vehicle tax credit, for instance, is only available for vehicles assembled in North America. In addition, eligibility and credit value is dependent on meeting certain geographic requirements on battery component manufacturing and assembly and critical minerals extraction, processing and recycling. Building the supply chain for battery components in the U.S. means growing more good jobs in-country.
Beyond simply requiring clean energy manufacturing in the United States, IRA further incentivizes investments in energy communities — by offering up to 10 percent additional incentives — that may see comparatively high levels of job loss due to the clean energy transition and communities that are marginalized and underserved. Although there are still several unanswered questions about how these energy communities will be identified and investments directed toward them, IRA aims to help advance a just transition by targeting energy-producing communities likely to be adversely impacted by the clean energy transition.
Our analysis finds that increasing the requirement for domestic manufacturing results in even greater employment opportunities than the job numbers cited above.
Incentivizing the domestic manufacturing of clean technologies and their supply chains could substantially increase job creation within the United States, as investment in construction, manufacturing and other industries would ripple through the U.S. economy. Our analysis finds that increasing the requirement for domestic manufacturing results in even greater employment opportunities than the job numbers cited above.
The greatest employment improvement is seen in transportation. Increasing the share of domestic battery manufacturing for EVs from 25 percent to 75 percent in the NZ scenario can create an additional 1.7 million jobs by 2035. Looked at another way, the 1.7 million additional jobs generated by increasing the domestic battery manufacturing share to 75 percent offsets 87 percent of the 2 million jobs that would otherwise be lost in the transportation sector.
Similar positive job impacts occur in the electricity sector, where our model increases the share for domestic manufacturing in solar, storage and wind. An additional 1.6 million jobs can be created by 2035 in the NZ scenario by increasing the domestic manufacturing share of solar and energy storage technologies from the current 25 percent to 75 percent and increasing the domestic manufacturing share of onshore and offshore wind from 45 percent to 90 percent.
2. Paying a family-sustaining wage and prevailing wage requirements
Discussion of the economic benefits of decarbonization often focus on the potential for job creation in the low-carbon economy. However, job quality is also important.
For many of the new and improved tax credits in the IRA, the law provides a substantially higher credit value for projects that support apprenticeships and pay prevailing wages that meet local wage standards. In doing so, the IRA takes a big step forward by ensuring that federal tax credits and incentives are structured to support projects that provide higher-quality, better-paying jobs to workers.
The IRA takes a big step forward by ensuring that federal tax credits and incentives are structured to support projects that provide higher-quality, better-paying jobs to workers.
There may be concerns about the tradeoffs that come with increasing wages. Some argue that increasing wages will make clean energy projects more expensive, slow their development or limit engagement in federal projects by certain actors. These are considerations that should be seriously monitored and managed, but evidence to date suggests that higher wages and prevailing wage requirements do not have a significant impact on project costs. It is also possible that bonus credits in the IRA for contractors who pay prevailing wages and use registered apprenticeships would defray any additional labor costs that could accrue.
Our analysis evaluates the economic impacts of improving workers’ wages. Using MIT’s Living Wage Calculator, we categorize wages of workers in the energy economy into three ranges: below $22/hour, $22-$34/hour and greater than $34/hour. We assume any worker earning below $22/hour qualifies as a worker earning less than a family-sustaining wage. In the NZ scenario, about 3.6 million workers across the modeled sectors earn a below family-sustaining wage by 2035, with nearly 2.2 million of them in the electricity and building sectors.
The total cost of increasing the wages for these workers to $22 an hour is estimated to be $25 billion per year, which represents a 1 percent increase in total modeled costs. At the same time, by increasing workers’ earnings and thereby consumer spending in the economy, an additional 203,400 jobs are created and $21 billion in GDP is added in 2035, recovering 84 percent of the extra cost and generating $4.7 billion in tax revenue.
Significant work remains to ensure a just clean energy transition in the US
While the IRA is a historic breakthrough for U.S. climate policy, significant work remains. Implementation of the various programs and policies will ultimately determine the degree to which the new law reduces emissions and creates a just and equitable clean energy economy.
Additional policies and investments will also be needed to enhance the economic benefits of federal climate policies. While prevailing wage requirements can boost job quality, this is just the baseline. Additional investments in workforce training associated with available employment opportunities, policies that enforce equitable hiring and treatment of all workers in the workplace, and efforts to encourage project labor agreements and protect and support workers’ rights to organize can further improve job quality without halting the growth of the net-zero economy.
While smart policies like those in the IRA can minimize job losses in a clean energy transition, there will be unavoidable disruption for workers. Establishing safety nets and workforce development policies related to wage replacement, bridge to retirement, and training and education funding will be essential for an equitable and prosperous net-zero transition. Investing in workforce training and development will be particularly important to ensure access to good quality jobs for both new workers as well as dislocated ones.
Establishing safety nets and workforce development policies related to wage replacement, bridge to retirement and training and education funding will be essential.
Finally, policies need to ensure that the benefits, in terms of access to new employment opportunities and beneficial clean technologies, as well as costs, are more equitably distributed among different communities. Low-income and minority communities are disproportionately impacted by fossil fuel dependency in terms of pollution and public health impacts. To that end, the siting of clean energy projects and facilities should be co-developed in consultation with local communities and ensure that climate investments do not add to their pollution burden.
Moving to a net-zero emissions economy can be good for jobs, good for people and good for the economy — but only if policy protects the communities that are at risk of being left behind.