EPS Climate Ambition Scenario Guide

July 2026

Modeled Scenario

The following table describes the settings used in Energy Innovation's U.S. Climate Ambition Scenario available online via the Energy Policy Simulator webtool. These settings are intended to be illustrative of a package that gets the U.S. back on track for emissions reductions through a combination of state and federal policy. Federal policies begin phasing in in 2029. This scenario is illustrative; alternative policies could also be used to achieve similar emissions outcomes.

Macro Policies

Macro Policy	Brief Text	Full Text and Scenario Detail
Carbon Capture Use and Sequestration Tax Credits (45Q)	Strengthened and extended 45Q tax credits for carbon capture, use, and sequestration lead to expanded CCUS in power and industry, as well as deployment of direct air capture and enhanced rock weathering.	The climate ambition scenario applies industrial CCUS to certain industries that produce streams of concentrated CO2, focusing on cement, refining, gas processing and petrochemicals. CCUS ramps in linearly starting after 2030, reaching 90% coverage of remaining CO2 emissions in these industries in 2050. Available emissions to capture are affected in both the power and industrial sectors by simultaneous reduction in total pollution via the growth of clean electricity generation displacing fossil in the power sector, as well as levers such as clean materials procurement in the industrial sector. The climate ambition scenario also includes 40% of the estimated potential for enhanced rock weathering and 20% of the potential for direct air capture by 2050, resulting in roughly 370 MMT CO2 sequestered annually from these carbon removal activities.
Clean Electricity Tax Credits (45Y/48E/45U)	The 45Y/48E/45U clean electricity tax credits are restored to Inflation Reduction Act (IRA) levels and extended through 2050.	The climate ambition scenario includes restoration of IRA level clean electricity tax credits and extends them through 2050, including for 45Y/48E/45U. The phase down and the sunset are eliminated. The revised tax credits also make meaningful changes to the Foreign Entities of Concern (FEOC) guidance, transferability, and other requirements, such that they can be fully utilized by the private sector.
Clean Manufacturing Tax Credits (45X)	The 45X manufacturing tax credits are restored to IRA levels and extended through 2050.	The climate ambition scenario includes restoration of the 45X manufacturing tax credits to IRA levels, and extends the credits through 2050. A share of the incentive is passed through to consumers in the form of lower battery prices. The revised tax credits also make meaningful changes to the FEOC guidance, transferability, and other requirements, such that they can be fully utilized by the private sector.
Clean Vehicle Incentives and Tax Credits (30D/45W)	The 30D and 45W personal and commercial clean vehicle tax credits are initially restored to IRA levels, but gradually phased out by 2050 for all vehicle types except freight-HDVs.	The climate ambition scenario includes restoration of IRA level clean vehicle personal and commercial tax credits. For passenger vehicles and freight-LDVs, we phase out the credits starting in the year at which the upfront cost of battery electric vehicles falls below that of their ICE alternatives. For example, new, unsubsidized battery-powered buses are expected to be cheaper upfront than diesel equivalents in 2035, so we phase out the incentive starting in that year until 2050. We do not phase out the freight-HDV credit because of the slower price decline for this vehicle type. We do not tether the commercial incentives to the incremental vehicle cost. The revised tax credits in the climate ambition scenario also make meaningful changes to the FEOC guidance, transferability, and other requirements, such that they can be fully utilized by the private sector.
DoE Standards for Industrial Energy Efficiency	The Department of Energy updates its energy efficiency standards for industrial equipment.	The climate ambition scenario includes a 20% improvement in energy efficiency in industrial equipment through 2050. Note that the scenario models an energy intensity improvement, rather than a carbon intensity improvement, which likely underestimates the potential reductions from a potential carbon intensity standard for steel and cement.
Electricity Sector Market Reform for Demand Response	Federal and state market reforms enable significantly more demand response.	The climate ambition scenario includes a national demand response program reaching 100% of the annual potential identified by the Brattle Group by 2035, with growing capacity through 2050. Under current policies, the U.S. is expected to have about 59 gigawatts of demand response capacity by 2050, whereas the climate ambition scenario includes roughly 5.5 times that, or about 330 GW of demand response by 2050. This could incorporate federal support for distributed storage resources that mirror 45D/48E for rooftop solar.
Federal and State Tax Credits and Incentives for Rooftop Solar; State Utility Reform	Tax credits and funding programs for rooftop solar are restored to IRA levels. These, plus additional state utility reform, for example net metering and time-of-use rates, result in significant deployment of rooftop solar.	The climate ambition scenario includes reinstatement of the 25D and 48E credits, which cover eligible residential and commercial buildings, and extends them through 2050, providing homeowners and businesses with a 30% credit towards new solar systems. These policies drive an additional 57 GW of rooftop solar deployment by 2050, a 26% increase over the 220 GW projected under current policies.
F-Gas Regulations	The Environmental Protection Agency (EPA) exercises existing authority under the American Innovation and Manufacturing Act to strengthen standards on HFC consumption and emissions.	Current policies include the American Innovation and Manufacturing (AIM) Act. The climate ambition scenario phases in additional f-gas reductions identified by the EPA, reaching 100% of the identified potential by 2035.
Forestry and Agriculture Incentives	Tax credits for forestry and agriculture practices to reduce greenhouse gas emissions are restored to IRA levels, expanded, and extended through 2050.	The climate ambition scenario includes the full potential improvement in forest management practices, 50% achievement of potential afforestation and reforestation measures by 2050, full potential for wetland restoration by 2050, full potential for grassland restoration and avoided conversion by 2050, and full potential for livestock measures as reported by EPA by 2035 (consisting of measures such as improved feed conversion efficiency, manure management, and anti-methanogen vaccines; note this does not include a reduction in meat consumption, it simply meets assumed food demand using a less emissions-intensive approach), and the full technical potential for cropland management and rice cultivation as reported by EPA by 2035 (largely representing no-tillage practices and better crop residue incorporation affecting CH4 and N2O).
Hydrogen Tax Credits and Funding (45V)	Tax credits for clean hydrogen production are restored to IRA levels and strengthened through 2050.	The climate ambition scenario includes a revised 45V tax credit and federal funding programs yielding 100% clean hydrogen by 2040 for existing uses of gray hydrogen, and clean hydrogen for all new uses in line with the schedule for new demand. For example, new hydrogen demand for iron reduction is clean hydrogen in the climate ambition scenario. In addition, blue hydrogen (SMR + CCS) competes for a 75% market share of clean production. In addition, the credit guidance is revised to ensure that 100% of green hydrogen electricity is from new clean sources.
Incentives or Standards for Concrete Products	Incentives and product standards for concrete lead to significant clinker substitution, an area in which the U.S. lags behind leading economies.	The climate ambition scenario includes the full technical potential for cement clinker substitution by 2035. Potential is estimated based on PRIMAP emissions database and the cement process emissions forecast in AEO 2025. The U.S. lags other leading economies in clinker substitution, and this would be consistent with policies in place in the European Union.
Incentives or Standards for Non-Road Vehicle Fuel Efficiency	Federal fuel efficiency standards and incentives for non-road vehicles drive further efficiency improvements for aircraft, rail, and ships.	For non-road vehicles, the climate ambition scenario includes an additional 30% fuel economy improvement by 2050.
Investment in Public Transit Infrastructure + Supporting Policy for Reducing VMT	Increased federal and state funding for transportation infrastructure and state standards on improving freight logistics yield reductions in passenger and freight vehicle miles traveled.	The climate ambition scenario achieves a 10% reduction in travel in light-duty vehicles for passenger trips by 2050. A third of the reduced passenger-miles are attributed to eliminated trips or non-motorized forms of transportation, with another third redirected to bus and the final third redirected to rail. These values are approximately half the mode shifting potential outlined in the International Energy Agency’s Blue Shift scenario for OECD countries. Regarding freight, the U.S. Federal Highway Administration reports approximately 25% of miles driven by trucks are for empty backhauls and empty shipping containers. In the climate ambition scenario, many of these empty truck trips are eliminated through improved freight logistics by 2050, resulting in a 3% overall reduction in freight miles traveled.
Low Carbon Fuel Standard/Sustainable Fuels Tax Credits	Restoration, strengthening, and extension of sustainable fuel tax credits created under IRA, coupled with strong low carbon fuel standards in leader states, yield lower-carbon liquid transportation fuel for remaining uses by 2050.	The climate ambition scenario meets 20% reduction in aviation emissions with the increased use of sustainable aviation fuel by 2040 (a ten-year delay on the 2030 goal set by the Biden Administration). Sustainable aviation fuel reaches a 40% reduction in aviation emissions by 2050. The same settings are applied to shipping. The climate ambition scenario includes leader states (those that have followed California's clean car rules to date, representing 29% of U.S. LDV registrations and 23% of HDV registrations) adopting low carbon fuel standards that decarbonize remaining gasoline and diesel demand in onroad vehicles by 2050.
Methane Fees and Regulation	EPA strengthens existing oil and gas methane rules. EPA introduces new rules for coal mines, water, and waste. The methane waste emissions charge is restored to its IRA value and strengthened through 2050.	The current policies scenario includes EPA methane rules for new and existing oil and gas equipment. The climate ambition scenario includes an additional decrease in methane emissions from natural gas and petroleum systems in line with achieving 100% of the potential identified by EPA by 2035, ramping in starting in 2029. For methane emissions from coal mines and the water and waste sector, the climate ambition scenario includes a decrease in methane emissions in line with achieving 100% of the potential identified by EPA by 2035, ramping in starting in 2029.
N2O Standards	Major sources of N2O emissions from manufacturing are addressed through EPA standards or agreements.	The climate ambition scenario includes the full technical potential for N2O abatement in the chemicals industry by 2035, via agreements like those put in place during the Biden Administration. Potential is calculated based on EPA data.
Power Plant Pollution Standards	EPA uses existing authority (not contingent on the Endangerment Finding) to regulate health-damaging air, water, and waste emissions from power plants.	The climate ambition scenario hits zero unabated coal power by 2035 and no new coal is built. The climate ambition scenario includes EPA power plant standards that result in no new unabated gas combined cycle plants after 2035.
Standards and Incentives to Improve Material Reuse and Efficiency; Government Procurement Requirements	Financial support for innovation in design for material efficiency and government procurement standards support more efficient use of products like cement, iron and steel.	The climate ambition scenario includes techniques like material-efficient building codes; requirements for greater building, infrastructure, and product longevity; and greater repair and re-use of products to reduce the need for as much cement, iron and steel, and other industrial commodities. The scenario includes 10% reductions for the iron and steel and cement industries, a setting well within estimates of potential from the literature (e.g., “Sustainable Materials Without the Hot Air: Making Buildings, Vehicles and Products Efficiently and with Less New Material").
State and Federal Incentives and Standards; Transmission, Interconnection, and Permitting Reform	A combination of state clean electricity standards; state and federal incentives; and transmission, interconnection, and permitting reform, pushes retail electricity sector sales to 80% clean by 2035 and 100% by 2040.	The climate ambition scenario includes a 100% clean energy standard by 2040, covering all retail sales (about 95% of total generation). We include an interim target of 80% clean by 2035. Qualifying resources include solar, wind, biomass, hydro, geothermal, nuclear, hydrogen, and CCS-equipped plants. In addition, we set targets for offshore wind in particular.
State and Federal Retrofit Incentives and Funding	Federal and state incentives and funding for building retrofitting increase the retrofit rate.	The climate ambition scenario includes an increase in building retrofitting of ~0.5%/year for residential buildings and commercial buildings such that by 2050, 13.5% of the existing residential building stock is retrofitted. These rates are ambitious but lower than the rates in some other countries (for example, Germany is targeting 2% per year).
State Building Codes and Federal and State Incentives	Improvements in state building codes and incentives for building materials continue the current trend towards more efficient new buildings.	The climate ambition scenario includes an efficiency improvement of 25% vs. BAU levels for building envelopes, scaling from 2029 to 2050. For reference, in 2012, new construction shell efficiencies were 7 to 8% more efficient than the existing stock, according to the EIA.
State Industry Emissions Standards + Federal Industry Efficiency Standards + Federal and State Incentives for Clean Heat	A mix of state emissions standards, federal efficiency standards, and state and federal incentives push the industry sector to switch to zero- and low-carbon fuels.	For most industries, the climate ambition scenario has 100% of new industrial equipment sold being electric by 2035 for low-temperature heat processes and by 2040 for medium- and high-temperature heat processes. This is achieved via a combination of state pollution standards, DOE efficiency mandates, and incentives. For two industries, we include a faster shift to electric: 1) steelmaking, where direct reduced iron (DRI) and electric arc furnace (EAF) applications are commercialized, and 2) gas pipelines, where motors are easily electrifiable at low cost.
State Building and Appliance Standards and Federal and State Incentives	A mix of state air pollution standards and federal and state incentives shifts most new equipment purchases to electrified technologies.	The climate ambition scenario includes 90% electrification of new space and water heating equipment by 2035 and 90% electrification of all other new building equipment by 2040.
State Tailpipe Rules (NOx), Indirect Source Rules; State and Federal Clean Vehicle Incentives; State LCFS; Incentives and Funding for Charging Infrastructure	A combination of state vehicle pollution rules, indirect source rules, state and federal clean vehicle incentives, state LCFS programs, federal and state funding for charging infrastructure, federal efficiency standards, and future federal vehicle standards lead to vehicle electrification by 2050.	For passenger LDVs, the climate ambition scenario projects sales of electric cars reaching 80% nationally by 2040, with ambitious states pushing to 100% sales in 2043. National heavy-duty freight vehicle sales shift to electric in line with light-duty vehicles but on a 5-year delay. New electric buses reach 80% sales in 2040 alongside LDVs.