Executive
Perspectives

US Inflation Reduction Act:
Significant Cost Savings for
Corporate Decarbonization
September 2022

The BCG Executive Perspective Part 1 | US Inflation Reduction Act: Climate & Energy
Features and Potential Implications shared an overview of the US Inflation Reduction Act andimplications on the energy, transportation, clean tech, and manufacturing sectors. It also included
four action items for executives across industries to take full advantage of the policy's value to:• Reduce costs• Re-evaluate decarbonization plans• Capture early mover advantage• Pursue new value pools
This new Executive Perspective further investigates the significant opportunities thatthese incentives provide for industries across the economy to achieve cost savings andgreenhouse gas emissions reductions
Future editions will investigate expected supply and other bottlenecks, the opportunity of newvalue pools created by these incentives, and international implications on US competitiveness fornet-zero

Copyright © 2022 by Boston Consulting Group. All rights reserved.

Introduction to this document

The IRA helps
mostcompanies
reduceoperating costs
and carbon
emissions

1

The IRA provides significant opportunities to reduce
operating costs as well as carbon emissions• Incentives can help lower absolute costs: Incremental ~15%+ ofemissions are cost-saving to abate, i.e., have positive returns today• Incentives can help lower carbon abatement costs: Average industry
abatement costs are up to 100% cheaper, though actual cost willvary by supplier and geographic footprint• As a result, companies must reconsider net-zero goals and timelines: New
incentives could shift immediate priorities, and companies can use
initial savings to "fund the journey" to net-zero2

However, acting fast is critical• Lock in available supply now: Supply scarcity is expected due to large
demand growth for key technologies and IRA domestic sourcing
requirements; companies must act now to access needed supply• Plan ahead for future needs: Decarbonization efforts have long leadtimes; work with suppliers to prepare for future needs and mitigate
future bottlenecks

1.1 The IRA helps companies reduce emissions at significantly lower cost
Note: Values represent upper limits, as analysis assumes all levers capture US incentives and reach technoeconomic cost estimates

15%

56%

PHARMA50%

63%… incremental emissions
now cost-saving to abate
due to IRA… of emissions arecheaper to abate
post-IRA

AUTO

$60/t
to

$14/t
$36/t
to

$~0/t
… abatement costpre-IRA vs post-IRA($/t CO2e)

77%

~100%
… cheaper average
abatement cost

Note: Only includes own and embedded emissions (Scope 1, Scope 2, and upstream Scope 3). Cost estimates are for 2030. Cost savings assume sourcing of each component to capture IRA incentives and may
4
not be representative of value captured by end user due to market inefficiencies, global supply chain, or other factors

1.2 Background | Nine common decarbonization levers across industries
Illustrative

Recycling/
circularity
Reduce use ofmaterial andprimary
feedstock byreusing inputs

Efficiency
Improveenergy,materials, orprocess
efficiency, e.g.,
by optimizing
transport
distances

1.Carbon capture, utilization, and storage
Source: BCG analysis

Renewable
electricity

Renewable
heat

Substituteconventional
fossil-energy
based power
generationwithrenewables

Substituteconventional
fossil-energy
based heatgenerationwithrenewables

Removal Levers

Fuel orfeedstockswitchSubstitutecurrent fuels orother inputs
with lower orzero-carbon
sources, e.g.,switch toelectric
vehiclesTechnology
substitution

Regenerative
AgricultureStand up newprocesses withlower
emissions,waste, andmaterial usage,e.g., greenhydrogen

Invest inecosystem
protection andother carbonminimizing
land-useapproaches

CCUS1
Captureprocess-related
carbonbyproduct andstore or use
them toprevent
emissions

CarbonRemovalRemoving
remaining
emissions outof theecosystem, e.g.,
direct air
capture (DAC)

5

Copyright © 2022 by Boston Consulting Group. All rights reserved.

Mitigation Levers1.3 Background | A marginal abatement cost curve (MACC) helps prioritize
decarbonization levers by showing their cost and abatement potential

For each decarbonization lever:• The height is the cost to reduce
emissions, paid by the company or a supplier• The width is the abatement potential forthe company's own and supply chain emissions

300
200
100
0

20%

40%

60%

-100

Note: Downstream Scope 3 emissions not included

100%

Cumulative abatement
potential (MtCO2e)-200

NEGATIVE NET COST:
Implementing these levers
will yield a net savings

80%

COST OF ABATEMENT:
Levers sorted by increasing cost;prioritize lowest cost levers first

100% ABATEMENT:
Abate all supply chain and own
emissions (Scope 1, Scope 2,
and upstream Scope 3)
6

Copyright © 2022 by Boston Consulting Group. All rights reserved.

Marginal abatement cost($/tCO2e)

Illustrative

1.4 Example 1 | Pharmaceutical company abatement curve showsrange of technologies required to abate emissions

Marginal abatement cost curve for illustrative pharmaceutical company
Abatement cost for each decarbonization lever($/ton CO2e)

Illustrative – pre-IRA

400

5Efficiency
Transport
CCUS
Renewable electr.
Renewable heat
Agriculture
Feedstock switch

300
200
4
3

100
0

Categorizationof decarb lever

Example decarbonization levers

1

Switch to renewable electricity forfinished drug manufacturing

2

Switch to electric trucks for on-roadtransport

3

Restore cultivated organic soils toincrease carbon levels on soil

4

Capture CO2 (CCUS) at aluminum
processing plant where packaging
material is produced5

Use sustainable aviation fuels for airtransport of products

2

1
20%

40%

60%

80%

100%

-100
-200

Abatement potential(% of yearly CO2e emissions)

Note: Only includes own and embedded emissions (Scope 1, Scope 2, and upstream Scope 3). Abatement curve shown is an illustrative
representation of typical curves within industry; specific company curves may vary
Source: BCG Decarbonization tool; BCG analysis

71.5 Cost saving levers | IRA reduces abatement cost of more than half ofpharma emissions

Marginal abatement cost curves for illustrative pharmaceutical company

Pre-IRA

Post-IRA1

Abatement cost for eachdecarbonization lever ($/ton CO2e)

Abatement cost for eachdecarbonization lever ($/ton CO2e)

Illustrative

400

400

300

300

200
100

Avg. Abatement
Cost: $60/ tCO2e

0

-100
-200

200
100
50%

Abatement
Savings

100%
Abatement potential(% of yearly CO2eemissions)

100%

50%

-100
-200

Illustrative
Largest cost
reductionfrom hydrogentax credit

Avg. Abatement
Cost: $14/ tCO2e(-77%)

02.3xAbatement Savings

Abatement potential(% of yearly CO2eemissions)

Abatement Cost post-IRA

Abatement saving post-IRA

Abatement Cost pre-IRA

Abatement saving pre-IRA

1. Cost savings assume sourcing of each component to capture IRA incentives and may not be representative of value captured by end user due to market
inefficiencies, global supply chain, or other factors. Note: Only includes own and embedded emissions (Scope 1, Scope 2, and upstream Scope 3). Abatement curve
shown is an illustrative representation of typical curves within industry; specific company curves may vary; Source: BCG Decarbonization tool; BCG analysis

Moreabatementsavings
post-IRA

77%
Overallabatement
cost
reduction
post-IRA
8

1.6 Example 2 | After energy efficiency and renewable electricity, several
techs required to reduce auto manufacturing emissions

Marginal abatement cost curve for illustrative automotive manufacturer
Abatement cost for each decarbonization lever($/ton CO2e)

Illustrative – pre-IRA

Categorizationof decarb lever

300

Efficiency
Transport
CCUS
Renewable electr.
Renewable heat
Tech Subst.
Circularity/Recycling

200
3

100
0

4

5

2

1
20%

40%

60%

80%

1

Increase process efficiency in newplastics production

2

Switch to renewable electricity for
all manufacturing and assembly3

Switch to EVs for remaining lightcommercial on-road transport

4

Electrify and use hydrogen for steel
manufacturing

5

Switch to biogas for high-temp heatin aluminum production

100%

-100
-200

Example decarbonization levers

Abatement potential(% of yearly CO2e emissions)
Note: Only includes own and embedded emissions (Scope 1, Scope 2, and upstream Scope 3). Abatement curve shown is an illustrative
representation of typical curves within industry; specific company curves may vary
Source: BCG Decarbonization tool; BCG analysis

91.7 Abatement costs | Post-IRA, carbon abatement is cost-neutral
for auto manufacturer

Marginal abatement cost curves for illustrative automotive company

Pre-IRA

Post-IRA1

Abatement cost for eachdecarbonization lever ($/ton CO2e)

Abatement cost for eachdecarbonization lever ($/ton CO2e)

Illustrative

300

300

200

200

100

Avg. Abatement
Cost: $36 / tCO2e

0

-200

Cost Saving
Levers (13%)

Illustrative

Avg. Abatement
Cost: <$0 / tCO2e(-100%)

Of emissions
that are newly
cost saving
post-IRA

100
50%

-100

50%

100%
Abatement potential(% of yearly CO2eemissions)

0

50%

100%

Cost Saving Levers (56%)

Abatement potential(% of yearly CO2eemissions)

-100
-200

Abatement
Incremental
Abatement
Cost Reduction
Abatement Savings
Savings pre-IRA
due to IRA
due to IRA
1. Cost savings assume sourcing of each component to capture IRA incentives and may not be representative of value captured by end user due to market
inefficiencies, global supply chain, or other factors. Note: Only includes own and embedded emissions (Scope 1, Scope 2, and upstream Scope 3). Abatement curve
shown is an illustrative representation of typical curves within industry; specific company curves may vary; Source: BCG Decarbonization tool; BCG analysis
Abatement
Cost post-IRA~100%
Overallabatement
cost
reduction
post-IRA
10

| Cost changes shift prioritization of decarbonization
1.8
X Prioritization
Players must re-evaluate decarbonization plans to capture additional value
levers, impacting decarbonization plans
Illustrative – Post-IRA

Abatement cost for eachdecarbonization lever ($/ton CO2e)

300
200
100
0

Reassess immediate priorities based on newordering of levers; accelerate where possible

10%

20%

30%

40%

Prepare for future, low-cost carbon
removals which will replace more costly
abatement levers (e.g., direct air capture
at $70/ton in 2030 with IRA credit)

50%

60%

70%

90%

100%

Reconsider overalltiming based onshare of abatement
possible at $0 net cost

-100
-200

80%

"Fund the journey"by pursuing levers now
with net savings

Pre-IRA: 68% abatement
at no net cost
[auto example]

Note: Only includes own and embedded emissions (Scope 1, Scope 2, and upstream Scope 3). Abatement curve shown is an illustrative representation of typicalcurves within auto industry; specific company curves may vary
Source: BCG Decarbonization tool; BCG analysis

Post-IRA: >100%
abatement at no net cost
[auto example]

Abatement potential(% of yearly CO2e emissions)11

The IRA helps
mostcompanies
reduceoperating costs
and carbon
emissions

1

The IRA provides significant opportunities to reduce
operating costs as well as carbon emissions• Incentives can help lower absolute costs: Incremental ~15%+ ofemissions are cost-saving to abate, i.e., have positive returns today• Incentives can help lower carbon abatement costs: Average industry
abatement costs are up to 100% cheaper, though actual cost willvary by supplier and geographic footprint• As a result, companies must reconsider net-zero goals and timelines: New
incentives could shift immediate priorities, and companies can use
initial savings to "fund the journey" to net-zero2

However, acting fast is critical• Lock in available supply now: Supply scarcity is expected due to large
demand growth for key technologies and IRA domestic sourcing
requirements; companies must act now to access needed supply• Plan ahead for future needs: Decarbonization efforts have long leadtimes; work with suppliers to prepare for future needs and mitigate
future bottlenecks

2.1 Suppliers are key to address majority of emissions for end-use industries
Raw material producers will rely on suppliers ofnascent technologies to decarbonize…

…whereas nearly all emissions are embodied
for key end-use industries

6%
29%

30%

33%
61%

CementOperations(Scope 1)

Steel

MiningConsumed
Power etc.
(Scope 2)

Agriculture

Textiles61%

Chemicals

77%

81%

82%

83%

85%

90%

Electronics

Construct.

Automotive

Food

Fashion

FMCG

Embodied/
Supply Chain(Scope 3 upstream)

Note: Top companies selected based on number of reported Scope 3 upstream categories and industry fit; FMCG = fast moving consumer goods
Source: WEF Net-Zero Challenge report13

2.2 Supply Scarcity | Demand is likely to outpace supply for both mature andemerging technologies in the near term, putting pressure on adoption

For mature climate technologies, increasing demand
will outpace supply, particularly given domestic
sourcing requirements
Electric vehicle sales (MM Units)1

Direct air capture (DAC) Capacity (MtCO2)2
EV example

80

For emerging climate technologies, existing scarcity
is expected to worsen

DAC example

100
85

60
40

50-60
40

50

20
0

16
0

2030
Expected Supply pre-IRA

Expected Demand post-IRA

1. IHS Markit Sales and Production Data, BCG Analysis 2.2030 Demand based on IEA 1.5C Scenario

2030
Expected Supply pre-IRA

Expected Demand post-IRA
14

2.3 Long lead times | Start now to capture early value
and de-risk the path forward

Long lead times typical…

…and several risks to timelines

Typical solar project timeline
Final investment decision

Supply chains

Operation

1 yearInterconnection

Constr.

Increase in demand will put pressure on supply chains,
creating a short-term squeeze on upstream capacity

Global trade flows
Domestic requirements and global regulations will affect tradeflows in and out of the U.S., shifting supply/demand economics

Raw materials sourcing

Typical carbon capture project timeline
Final investment decision

Design, development, permitting

Operation

Construction

Demand for batteries and other technologies will increase,depleting finite material supply

Domestic political uncertainty
Incentives could expire or change, requiring companies to act
soon to get known value

Permitting
For projects requiring permits, lead times can be extremely long(although legislation may reform this process in near future)
These and other potential bottlenecks
investigated further in future report15

2.4 Engage Suppliers | Several ways to engage suppliers of new technologies
and/or decarbonized materials

Demand signals• Form coalition of peers,
including industry or techcoalitions and pooled
procurement

Group of solar
developers withpooled module
procurement

Mitsubishi-South
Pole commitment topurchase carbon
removal credits• Make advanced market
commitments to purchasespecific tech

Strategic investments• Invest in specific partners,
via concrete volume agreements
or other partnerships• Provide capital with lower
expected returnSource: CDP; BCG

First Movers
Coalition signals
demand for nascentclimate technologies

British Airways'
offtake agreement
for Sustainable
Aviation Fuel

Breakthrough Energy
Catalyst supports
nascent climate techBusiness ecosystemof renewable energy
credits
16

2.5 First movers are already acting to capture value post-IRA

August 31, 2022

August 30, 2022

September 1, 2022

August 23, 2022
August 25, 2022

August 26, 202217

Further reading
Sustainability Strategy & Innovation
March 22, 2021

The Next Generation of
Climate Innovation

MACCs

July 12, 2022

The Strategic Race to
Sustainability

June 23, 2022

Creating Shareholder
Value From C&S
Commitments

Business Coalitions & Ecosystems
Dec 8, 2021

When a Business
Ecosystem Is the Answer
to Sustainability

The Challenges of a
Sustainability
Transformation

June 29, 2022

Companies Need toIntegrate Climate into
Their Strategies

January 2021

Net-Zero Challenge: The
supply chain opportunity

Sustainable Resource Scarcity

Feb 14, 2022

How to Build a HighImpact Sustainability
Alliance

July 22, 2022

Nov 12, 2021

Ecosystems for
Ecosystems

Oct 29, 2021

Identifying Resource
Scarcities in the Race to
Sustainability

Dec 6, 2021

Solving the Puzzle of
Sustainable Resource
Scarcity

July 8, 2021

The Green Economy Has
a Resource-Scarcity
Problem18

Glossary of key terms
Term

Definition

Marginal Abatement
Cost Curve (MACC)

A MACC presents the costs or savings expected from different emissions abatement opportunities (or levers), alongside the potential volume ofemissions that could be reduced if the opportunities are implemented. MACCs measure and compare the financial cost and abatement benefit
of individual actions. They use the metric of dollars per tonne of carbon dioxide equivalent – usually represented as $/tCO2e.1

Direct air capture (DAC) Direct air capture (DAC) technologies extract CO2 directly from the atmosphere. The CO2 can be permanently stored in deep geologicalformations (thereby achieving negative emissions or carbon removal) or it can be used, for example in food processing or combined withhydrogen to produce synthetic fuels.2
Scope 1 Emissions

Covers the emissions from operations under a facility’s control, including onsite fuel combustion.3

Scope 2 Emissions

Covers the emissions from usage of electricity, steam, heat and/or cooling purchased from third parties.3

Scope 3 Emissions

Covers upstream and downstream value-chain emissions. Scope 3 upstream emissions, or supply-chain emissions (also called "Embodied
Emissions"), cover procured products, transport of suppliers and business travel. For example, this covers emissions in the production of steel
used in the car that an automotive original equipment manufacturer (OEM) produces. Scope 3 downstream emissions cover transport ofproducts, usage of sold products and product disposal. For the same automotive OEM, this refers to the emissions from its cars being driven bycustomers.3

Sources: 1. How to read a marginal abatement cost curve, Climateworks Centre ; 2. IEA Direct Air Capture report; 3. Net-Zero Challenge: The supply chain
opportunity, WEF in collaboration with BCG

BCG contacts

Chrissy O'Brien

Cornelius Pieper

MD & Senior Partner,
MD & Senior Partner,
Sustainability in Healthcare Operations Sustainability in Industrial Goods
BostonBostonPieper.Cornelius@bcg.com
OBrien.Christine@bcg.com

Tom Baker

MD & Partner
Renewables & Decarbonization
San Francisco
Baker.Thomas@bcg.com

Alex Dewar

Partner
Decarbonization
Washington DC
Dewar.Alex@bcg.com

Pattabi Seshadri

MD & Senior Partner,
BCG Global Leader - Energy
DallasSeshadri.Pattabi@bcg.com

Wendy Woods

MD & Senior Partner
Vice Chair, Social Impact &Climate & Sustainability
BostonWoods.Wendy@bcg.com

Thomas Dauner

Katherine Phillips
Project Leader
Decarbonization
New York
Phillips.Katherine@bcg.com

Hubi Meinecke

MD & Senior Partner,
MD & Senior Partner,
BCG Global Leader - Industrial Goods BCG Global Leader – Climate & Sustainability
Hamburg
Stuttgart
Meinecke.Hubertus@bcg.com
Dauner.Thomas@bcg.com
20

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