Wednesday, August 16, 2023

The Cost Of The Inflation Reduction Act Is Rapidly Inflating

From The Brookings Institution, March 31:

BPEA | Spring 2023

Economic Implications of the Climate Provisions of
the Inflation Reduction Act

....1 Introduction 

President Biden described the climate provisions of the Inflation Reduction Act (IRA) as “the most aggressive action ever, ever, ever to confront the climate crisis.”1 Other observers similarly describe it as “the most ambitious funding ever for tackling climate change” and “the largest climate legislation in U.S. history.”2 Consistent with preliminary analysis, modeling suggests that IRA puts the U.S. on track to reduce greenhouse gas (GHG) emissions 32% to 42% below 2005 levels in 2030 (Bistline et al., Under Review), which is 6 to 11 percentage points lower than without IRA (per the analysis in Section 3), closing the gap toward its Nationally Determined Contribution under the Paris Agreement to halve economy-wide GHG emissions by 2030. The problem IRA confronts is massive – re-orienting the way the U.S. and global economies produce and consume energy. IRA’s incentives span the entire energy sector, from producers of raw materials to end-use consumers, and will set considerable new forces in motion.

IRA is vast, and the economics profession will likely devote considerable attention over the next decade to analyzing the impacts of many of the individual programs embodied in this important piece of legislation. We offer a broad-stroke analysis of the law, summarizing the major climate- related provisions and noting some of the possible economic impacts. We focus on several major themes.

First, we discuss the possible fiscal implications of the act and note a wide range of uncertainty in the extent to which firms and households will take up the different tax credits. The Congressional Budget Office (CBO), using inputs from the Joint Committee on Taxation (JCT), estimates that over two-thirds of the fiscal costs of the climate-related provisions of IRA ($271 Billion) will be tax credits, which target clean electricity production and investment, new and used electric vehicle pur- chases, and investments in clean energy and energy efficiency by individuals (Table 1 in Section 2). The remaining third of fiscal costs ($121 Billion), per CBO/JCT, will be direct expenditures on forestry and agriculture, energy loans and other financial investments, and other items. Most of the tax credits are uncapped and are a function of individual firm investment decisions and individual household consumption decisions.

We summarize evidence from the Electric Power Research Institute’s U.S. Regional Economy, Greenhouse Gas, and Energy (EPRI’s US-REGEN) model in Section 3 suggesting that initial estimates of the fiscal costs may be understated in several areas due to greater deployment of IRA-supported technologies such as clean electricity and electric vehicles. 

Central and higher-end estimates of tax credit expenditures range from $780B to $1,070B over the 10-year budget window, which are 2.9-4.0 times higher then the CBO/JCT score for comparable credits. 

When these tax credits are combined with direct expenditures, total budgetary effects of IRA’s climate provisions are $900B to $1,200B cumulatively through 2031 (Table 2 in Section 3). Even at the higher end of fiscal costs, IRA tax credits reduce CO2 emissions at an average abatement cost of $83 per metric ton for the power sector—considerably less than recent estimates of the social cost of CO2 (about $200/t-CO2 in 2020 per Rennert et al. (2022)), even before accounting for avoided air pollution damages and other co-benefits.

On the other hand, IRA’s fiscal costs may be considerably lower. We document that the costs for clean electricity generating plants, for whom IRA includes large subsidies, are more sensitive to interest rates than conventional fossil fuel generators. In addition, continued supply constraints, permitting delays, and other factors may increase costs and reduce the pace of clean energy deployment, depressing take-up for IRA incentives. Our lower-end estimates of tax credit expenditures are about $240B in a scenario with higher interest rates and technology costs, where total fiscal costs are slightly lower than with CBO/JCT estimates but more limited economy-wide CO2 reductions....


If preferred, here is the paper at the National Bureau of Economic Research
Here is Harvard co-author Catherine Wolfram's slide show.

If interested see also

February 5: Big Money: "The $400 Billion Man Running America’s Clean Energy Transition"

No, not John Podesta, he only has $370 billion to dole out. (NYT, Sept 2, 2022)

From Mother Jones, February 4:

Jigar Shah heads a loan program that was “dormant” under Trump, but now it’s hopping.....

April 11  "E.P.A. Is Said to Propose Rules Meant to Drive Up Electric Car Sales Tenfold"

This is President Obama's "I've got a pen [executive orders], and I've got a phone [administrative state]".

That was in January 2014 but the antecedents of this particular push go back to the University of Denver Law School in 2008* as justification for what they wanted Barack Obama to do if (when) he won the 2008 election.

This approach was favored by John Podesta, at the time, 2014 -2015, counselor to President Obama and currently in charge of the smaller but better known of the two green financial honeypots, which combined are doling out 3/4 trillion dollars.

From the New York Times....

April 12:  "America’s $800bn climate splurge is feeding a new lobbying ecosystem"

Following on the mentions of John Podesta and the two huge honeypots of money in yesterdays "E.P.A. Is Said to Propose Rules Meant to Drive Up Electric Car Sales Tenfold" here are some of the; I was going to say flies but the graphic looks like locusts, the critters being attracted to the feast....

July 18  The Cost of The Inflation Reduction Act Has Inflated To Almost $1 Trillion

Wharton is going to get blackballed by the O'Biden-Harris administration if they keep this up. They also released a study showing that the cost of the Admin's student loan forgiveness would be in the four-comma club as well:

Turley: "Wharton Study: Biden Tuition Debt Forgiveness Could Cost $1 Trillion"
This is the high end of the range Wharton was referencing just last week: Penn Wharton: "Forgiving Student Loans: Budgetary Costs and Distributional Impact".

I did catch the comments from the subsidy czar in May: 

Increased green tax-credit costs are a sign of success, White House's Podesta says

Which, when I saw it again this morning reminded me of a sales guy who, whenever I raised an objection to whatever he was pitching would say "That's they beauty of it." I finally asked him why he would say that and he told me "It's the all purpose turnaround. I say it, it stops my client's thoughts for a couple seconds and gives me time to figure out what I want to say next."

I used a variation of it earlier today in the introduction to "News You Can Use: "ESG' in US finance job titles comes with 20% pay premium'".