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IRA costs could balloon over $1 trillion

Mar 30, 2023
Illustration of a large dollar bill sign balloon being held by a man who is floating slightly off the ground.

Illustration: Aïda Amer/Axios

The total cost of the Inflation Reduction Act could top $1 trillion, a new Brookings Institution paper suggests.

Why it matters: That's nearly three times the original estimate, and could climb higher if even more Americans and companies than expected take advantage of the tax credits and incentives.

By the numbers: The Electric Power Research Institute’s US-REGEN model suggests that tax credits alone would cost $780 billion by 2031, roughly three times the Congressional Budget Office's and Joint Committee on Taxation's estimates.

  • The agencies estimated the IRA's climate incentives would cost roughly $356 billion over 10 years: $121 billion in direct spending and $235 billion in tax credits.

Be smart: The IRA did not include a cap on most of the credits outlined in the law, so the costs largely depend on how many households and companies decide to use them and to what extent.

Zoom out: Startups and large firms alike have already started leaning on IRA incentives to bolster their own economic outlooks and raise private funding.

  • Funds associated with IRA incentives haven't yet hit bank accounts, so it is not clear what some of the bill's broadest implications may be.
  • That said, companies working in capital-intensive industries like clean energy development, carbon capture and EV infrastructure have all signaled they are eager to take advantage of the law's incentives to help bring down costs for end consumers.

Yes, but: There is still the macroeconomic outlook to worry about, the paper's authors caution.

  • Rising interest rates, tight labor markets and raw materials shortages could drastically change the outcome of the IRA's climate incentives.
  • If companies can't hire crews to build solar farms, for example, they also can't take advantage of the associated credits.
  • Clean energy investments are most sensitive to increases in interest rates and could stall with further rate hikes, the paper notes.

The bottom line: The adjusted estimate indicates more companies and residents are eager and willing to take advantage of the IRA's climate incentives than previously thought, but could get caught up in policy cross-hairs if the costs prove too much for lawmakers to stomach.

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