Read the full analysis here.
Fisher and Loucks also break down their findings in this video.The Budgetary Cost of the Inflation Reduction Act’s Energy Subsidies
IRA Energy Tax Credits Could Cost $4.7 Trillion by 2050
The massive cash transfer from taxpayers to private firms under the guise of environmentalism creates an overwhelming and undue burden on taxpayers who continue to pay for fiscally irresponsible federal spending.
he Inflation Reduction Act (IRA) became law on August 16, 2022. Despite its name, the act was mostly designed to decarbonize the US economy by providing subsidies to producers of clean energy and consumers of low-carbon-emitting preferred products such as electric vehicles.
A contentious point of debate surrounding the passage of the IRA was its budgetary impact—how much liability American taxpayers would have to take on to subsidize clean energy. Various governmental and nongovernmental organizations estimated fiscal costs that turned out to be too low and that they later revised upward.
Using a transparent budget scoring methodology, we estimate that the energy subsidies in the act will cost between $936 billion and $1.97 trillion over the next 10 years, and between $2.04 trillion and $4.67 trillion by 2050. This estimate is substantial because several of the IRA’s largest subsidies are uncapped.
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When Congress passed the IRA, the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimated the energy-related IRA subsidies would cost about $370 billion. An analysis by Goldman Sachs later estimated the IRA’s 10-year cost would be $1.2 trillion.
However, the IRA’s energy subsidies are multiple times larger than initial estimates, and they expose American taxpayers to potentially unlimited liability. Congress should repeal all the energy subsidies in the IRA. At a minimum, Congress should cap total spending on energy subsidies and require budget experts at the CBO, JCT, and other government organizations to publish transparent and updated estimates of the IRA’s long-term costs.
Introduction
The Inflation Reduction Act (IRA) became law on August 16, 2022. Despite its name, the act was mostly designed to expedite the decarbonization of the US economy by providing subsidies to producers of low-emission energy and some consumers of low-carbon-emitting products such as electric vehicles. A contentious point of debate surrounding the passage of the IRA was the various estimates of its budgetary impact—how much liability American taxpayers would have to take on to subsidize clean energy. Various governmental and nongovernmental organizations estimated fiscal costs that turned out to be too low and that they later revised upward.
In this paper we aim to explain the energy spending in the IRA and demonstrate that it is highly variable, uncapped, and has been underestimated; provide a transparent and replicable method for scoring the IRA in the upcoming 10-year budget window; estimate a range of total spending (total taxpayer liability) through 2050; highlight the major spending drivers; and advocate for full legislative repeal of the IRA while noting significant reforms that could be made to the IRS guidance and regulations dealing with IRA implementation.
Table 1 summarizes the upper- and lower-bound estimates of energy spending in the IRA, both for the coming 10-year budget window and for a longer budget window stretching to 2050. It also shows the effect of applying a 3 percent discount rate to the spending in the 2050 budget window, which is to reduce the net present value of the stream of IRA spending by approximately 30 percent.
