Price tag for Biden signature climate law balloons to multiple of initial estimates
Jeremy Beaman
Video Embed
The federal government may end up spending $800 billion more than originally projected to subsidize green energy technologies under the Inflation Reduction Act, fueling a campaign from Republicans and a threat from the legislation’s own chief architect to roll its programs back.
Democrats passed the energy and healthcare spending law last August without any Republican support in what became the defining achievement of President Joe Biden’s first two years in office. The law expanded existing tax credits for electric vehicles and renewable energy while creating new tax incentives designed to expand manufacturing of those technologies in the United States to serve both the administration’s climate change and industrial agendas.
SAVINGS RATE: AFTER A SLEW OF BANK FAILURES, IS THE WORST TURMOIL IN THE INDUSTRY BEHIND US?
The original estimate tied to the legislation projected its energy and climate change-related programs to cost $369 billion over 10 years.
More recent projections estimate that the IRS will shell out more and, by some measures, three times more.
Goldman Sachs published analysis in April estimating the value of IRA incentives over 10 years at $1.2 trillion. The Wall Street giant also estimated the law would bring along $3 trillion in private-sector investment in renewable energy with it.
Researchers at the University of Pennsylvania’s Wharton School recently updated their estimate of the law’s cost, putting projected spending on the energy and climate provisions at around $1.05 trillion through 2032, up from its earlier estimate that the cost would be closer to $385 billion.
Penn Wharton now estimates spending on incentives for clean cars and trucks at around $393 billion over 10 years, a number that by itself exceeds the original estimate for the entirety of the IRA’s energy and climate-related provisions. The analysis said “newer implementation details have emerged,” affecting its estimate.
Analysts have provided a range of explanations for the higher estimates. One factor is there’s been greater interest in the subsidies than initially expected, for instance, from families willing to buy electric vehicles or manufacturers willing to build windmills. Another explanation is that the administration has implemented the law in such a way to allow subsidies to be given out more freely than initially thought
Others have suggested that earlier assumptions the Congressional Budget Office made in estimating how widely industries such as battery manufacturing would utilize incentives were way off base.
Implementation of the law has been a major sticking point for some lawmakers who supported it, the most prominent of whom is Sen. Joe Manchin (D-WV), who has accused the Biden administration of “liberalizing” some of the law’s strict requirements determining eligibility for tax credits and bonus credits.
Manchin’s biggest problem is the Treasury Department’s implementation of the law’s revised tax credit for consumer electric vehicles. Eligible vehicles must be assembled in North America and source their components from the U.S. and select free-trade agreement countries in order to qualify.
Guidance that Treasury proposed in March would open up the credit to more vehicles than originally expected.
Manchin, who opposed an earlier iteration of Democrats’ climate change spending package out of fear that it spent too much, has complained the administration’s implementation is going to result in spending that exceeds the earlier estimate of $369 billion and “blow that out of the water.”
“I would love to make sure that the IRA stays within the realm of what it was supposed to do and not let them expand it the way they have, because they’re way outside of how the bill was written and the intent,” Manchin, who has threatened to take the administration to court over the matter, told reporters on Wednesday.
House Republicans, who passed legislation that would raise the debt ceiling and repeal a multitude of the IRA’s energy tax credits and other programs, have attacked the law and its subsidies for costing taxpayers.
“Taxpayers are footing a bill for these tax breaks that are hundreds of billions above what they were told,” Ways and Means Chairman Jason Smith said during a hearing in April.
The Biden administration has stood firmly by the law, which has been estimated to enable the reduction of greenhouse gas emissions by some 40% by 2030.
In addition to subsidies for electric vehicle purchases, renewable energy projects, and manufacturing facilities, the IRA also provides rebates for products such as residential heat pumps and solar panels.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
White House Adviser John Podesta downplayed estimates that the Inflation Reduction Act could end up being more expensive than it was originally scored.
“I think what he’s been pushing recently is the question that the bill is kind of overperforming, that he’s worried there’s more takeup than was anticipated,” Podesta said. “I think that’s success.”