Goldman Sachs projects that the US Inflation Reduction Act (IRA) will prompt roughly $3 trillion in renewable energy technology investments. The investment bank's report also highlights that the US shale revolution could yield double the energy output it produced a decade ago.
Michele Della Vigna, Goldman Sachs' head of natural resources research, said that although shale remains a significant asset, the US cannot rely solely on it for maintaining its competitive edge in energy costs over the next decade. As a result, another energy-related revolution is essential for the US to preserve its leadership in energy costs.
The IRA, implemented last year, fosters the adoption of renewables like wind, solar, and hydropower through tax breaks and promotes electric vehicle (EV) ownership. Goldman Sachs anticipates that this legislation will ignite the "next energy revolution" and could offer up to $1.2 trillion in incentives by 2032.
The report estimates that $2.9 trillion will be allocated for overhauling the US energy system by 2032, averaging $290 billion annually. Moreover, the IRA could trigger $11 trillion in infrastructure investments by 2050.
According to Goldman Sachs' analysis, the transportation industry will witness the most significant impact from this new economic plan. This will be accomplished by incentivizing consumers to choose electric and clean commercial vehicles through tailored tax credits, making cleaner options more cost-effective.
After 2030, Goldman Sachs expects a sharp decrease in oil demand for transportation as EV market share grows, predicting that 75% of the market will comprise EVs by 2040. Replacing an internal-combustion engine car with a single electric vehicle in the entire vehicle fleet can result in an average annual reduction of 11 barrels of oil consumption.
As the clean energy initiative and electrification advance, demand for resources like aluminum, copper, lithium, and nickel, essential for power grids, charging stations, EVs, and battery production, will increase. Della Vigna forecasts a substantial rise in demand for battery metals such as lithium, nickel, and cobalt. The need for nickel, cobalt, and lithium will primarily depend on the choice of EV battery types.
The IRA's government spending will depend on the number of businesses relocating their operations to the US. Tax credit benefits are being weighed against potential increases in production costs compared to current manufacturing locations. A significant unknown is the number of EVs eligible for tax credits, according to Goldman Sachs.
The International Renewable Energy Agency (IRENA) reported that a record 295 gigawatts of new renewable energy capacity was added globally in 2022. IRENA states that investment in the energy transition must rise to $35tn by 2030, a fourfold increase from current levels.
With electricity accounting for nearly a third of US carbon emissions in 2021, investing in clean energy sources is crucial. Goldman Sachs estimates that by 2050, the nation's electricity demand will be two and a half times higher than in 2021, necessitating a $6.6 trillion investment in renewable energy.
Developing utility-scale energy storage, renewable energy plants, and upgrading power grids are all essential steps. The investment bank projects a 9% annual growth rate for renewable energy sources until 2050. By 2030, renewables will constitute 44% of total energy generation capacity, increasing to 80% by 2050.
Goldman Sachs explains that hydrocarbon energy resources in the US will eventually decline, depending on the pace of the energy transition and the carbon content of each fuel. Natural gas consumption is projected to begin decreasing after 2030 but is expected to be more stable than other fuels like oil and coal.