A divisive piece of legislation, the Inflation Reduction Act (IRA), was enacted by Congress on August 12, 2022, and signed into law by President Joe Biden four days later.
The IRA is a holdover from the failed Democratic effort to approve Biden’s “Build Back Better (BBB)” proposal. The IRA provides funding for healthcare subsidies, lower prescription costs for Medicare recipients, tax enforcement, and increased company taxes. The IRA’s impact on inflation was previously predicted to be insignificant by budget specialists, but it is turning out to be much more than anybody anticipated.
The green energy provision of the plan is the single most comprehensive strategy yet proposed for decarbonizing the American economy. The cost of the bill’s green energy features has tripled since it was first calculated, reaching roughly $1.2 trillion.
Green energy tax incentives are gaining popularity, reflected in the IRA’s net swing of over $1.3 trillion away from the federal budget. Uncapped tax credits for private companies investing in green energy make up most of the IRA’s green energy provisions. The “cost” throughout the ten years is not government expenditure but somewhat lost tax income. Due to tax advantages, the return on private sector investments in green energy is higher than was anticipated a year ago and might even flip a predicted negative return into a positive one.
According to Goldman Sachs, private investment in green energy sectors covered by the IRA will increase more than predicted, with the most significant increases expected in electric car production and advanced manufacturing. Forecasting EV sales and the EV supply chain in the US is necessary for estimating the total amount of future tax incentives on EVs. Since Biden signed the IRA, several manufacturers have declared intentions to construct EVs or battery plants in the US, potentially producing millions more EVs.
Government attempts to combat global warming and climate change may reach a tipping point with the introduction of the IRA, which has the potential to seize a disproportionate share of the global green energy market.
Suppose the IRA delivers economic gains comparable to the US highway system. In that case, nobody will complain about the cost 50 years from now, even if the original cost estimate was $27 billion in the 1950s and 1960s.
