TL/DR –
The Inflation Reduction Act (IRA) is the US’ most significant investment in combatting climate change so far, with economic benefits from reduced greenhouse gas pollution expected to be over $5 trillion from now until 2050. These projections underestimate the benefits of the IRA as it also reduces local air pollution, providing health and productivity gains domestically. However, the act’s costs to the federal budget are often overestimated as they do not consider the benefits received by American consumers and businesses from the tax credits offered by the IRA.
Arik Levinson, Karl Dunkle Werner, Matthew Ashenfarb, Annelise Britten: Inflation Reduction Act
The Inflation Reduction Act (IRA) is the largest US initiative to combat climate change to date. It aims to both stimulate economic growth and reduce greenhouse gas emissions. Moreover, it targets climate investments towards regions historically dependent on the fossil fuel economy and those with lower wages, employment, and college graduation rates.
However, common projections often underestimate the economic advantages of the IRA, focusing predominantly on reducing emissions and the projected federal budget impact.
- The IRA will generate global economic benefits exceeding $5 trillion by 2050 from reduced greenhouse gas pollution. This figure neglects other benefits, such as the reduction of local air pollution, leading to health and productivity gains within the US. Lower-bound estimates of local pollution reduction benefits range from $20 to $49 billion in 2030.
- The IRA’s projected fiscal costs largely involve reductions in taxpayers’ taxes or increased federal payments to taxpayers. These costs are often overstated as they only account for one side of each transaction. Tax credits from the federal government are benefits for American drivers who purchase electric vehicles, homeowners who install efficient heat pumps, and investors who build clean energy infrastructure.
IRA Benefits: Global Climate and Improved US Air Quality
Fossil fuels, when burned for electricity, transportation, or manufacturing, cause environmental problems, including global climate damage due to greenhouse gases. They also harm local air quality in the US by releasing sulfur dioxide, nitrogen oxides, volatile organic compounds, and particulates. The IRA aims to address both of these issues.
According to a recent paper in Science, the IRA will significantly reduce CO2e emissions. These reductions are projected to provide vast economic benefits, with each ton not emitted (or captured and permanently stored) reducing future economic damages. The EPA’s assessment of the economic benefits of the IRA’s greenhouse gas reductions through 2050 amounts to $5.6 trillion.
Local Pollution Benefits of the IRA
The harms from local air pollution are well documented. Airborne particulates reduce worker productivity, people work fewer hours, perform worse on cognitive tests, and even have more car accidents. Climate policies like the IRA that limit greenhouse gas emissions can also improve local air quality. One study by Energy Innovation projected 85,900 fewer asthma attacks in 2030, 3,700 fewer heart attacks, 1,700 fewer hospital admissions, and 350,700 fewer lost workdays due to the IRA.
Fiscal Cost Estimates Overstate IRA’s True Economy Cost
While fiscal cost estimates are essential to understand the effect on the federal government’s annual deficit and the national debt, they often overestimate the true economic cost of programs like the IRA. The bulk of the IRA’s fiscal costs are tax credits, which are benefits received by American citizens and businesses, leading to no net loss to the economy.
Thus, an accurate benefit-cost analysis should consider the global benefits of the IRA, which total $5.6 trillion and significantly exceed the projected fiscal costs. The benefits will likely exceed the true economic costs even further, making the IRA a highly beneficial initiative for both the US and the global community.
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