ICYMI: ANALYSTS & EXPERTS HIGHLIGHT CLIMATE & ECONOMIC BENEFITS OF THE INFLATION REDUCTION ACT

The Inflation Reduction Act delivers big on climate and economic benefits. Several reports have found that not only will the package reduce emissions by roughly 40% by 2030, but the bill will also reduce consumer energy costs, increase GDP, and create over a million jobs in the clean energy industry. As the name indicates, the package will significantly reduce inflation and benefit middle-class Americans. 

HERE’S WHAT THEY FOUND

Energy Innovation:

• A report from Energy Innovation found the Inflation Reduction Act’s climate provisions could cut greenhouse gas emissions 37 to 41 percent below 2005 levels, enabling the U.S. to close 50 to 66 percent of the emissions gap between a Business As Usual scenario and the Nationally Determined Contributions under the Paris Agreement in 2030.
  • The reconciliation package will reduce GHG emissions by an estimated 870 to 1,150 million metric tons of carbon dioxide equivalent (CO2e) in 2030. 
• For every ton of emissions generated by the legislation’s oil and gas provisions, at least 24 tons of emissions are avoided by the other parts of the bill. The report concludes that “despite increased oil and gas extraction, the IRA overwhelmingly reduces emissions.”
• Avoided air pollution as a result of the Act’s climate provisions could prevent 3,700 to 3,900 premature deaths in 2030, in addition to 99,000 to 100,000 asthma attacks, and 405,000 to 417,000 lost workdays. Avoided deaths are concentrated in communities of color, which have historically experienced the most harm from air pollution.
• The reconciliation package could increase GDP by 0.84 to 0.88 percent in 2030, and create up to 1.5 million jobs in 2030, mostly in the manufacturing, construction, and service industries.
  • The report notes the bill’s clean energy investments will “greatly encourage domestic manufacturing” of technologies needed to be deployed at a rapid pace, leading to job growth across a range of related sectors. 

Moody’s Analytics: 

• Overall, the Inflation Reduction Act will reduce inflation over the 10-year budget horizon.
• By the fourth quarter of 2031, the consumer price inflation index will be 0.33% lower because of the legislation, representing a reduction in CPI inflation of 3.3 basis points per annum on average. 
• Moody’s concluded, “the legislation will nudge the economy and inflation in the right direction, while meaningfully addressing climate change.” 
• By 2050, emissions will be reduced by nearly 30% compared with a business as usual scenario of no additional climate action.
  • The Inflation Reduction Act’s climate provisions will meaningfully reduce carbon emissions, and thus the physical risks and economic losses resulting from climate change, including costly extreme weather events.
• Thanks to the package’s clean energy provisions, the typical American household is set to save an estimated $300 per year on energy bills in today’s dollars.
• The legislation also mitigates the economic cost of inaction, leading to GDP growth. Compared with a business as usual scenario where no additional climate action is taken, real GDP is approximately 0.1% higher a decade from now because of the Inflation Reduction Act, 0.6% higher by 2050, and 2.7% higher by 2100. 

Rhodium Group: 

• The Inflation Reduction Act could cut net greenhouse gas emissions 31 to 44 percent below 2005 levels in 2030, compared to 24% to 35% under current policy.
  • With additional action from executive agencies and subnational actors, the package will put the U.S.’s target of cutting emissions in half by 2030 within reach. 
• Clean energy investments in the package can help to reduce consumer energy costs in the medium term.
• Long-term electric vehicle tax credits will accelerate the transition to EVs nationwide.
• Manufacturing tax credits and investments will help diversify supply chains, expand domestic capacity to produce clean technologies, and help enable record levels of wind and solar deployment.
• The package can help improve energy security by reducing energy imports and exposure to volatile global fossil fuel prices. 

Economists:

Letter from 126 Economists, 8/2: 

• “This historic legislation makes crucial investments in energy, health care, and in shoring up the nation’s tax system. These investments will fight inflation and lower costs for American families while setting the stage for strong, stable, and broadly-shared long-term economic growth.”
• “This legislation represents the single biggest step to date in tackling the climate crisis. It makes key investments to incentivize the transition to cleaner energy sources and greater efficiency. It also invests in the current energy distribution system to make it more resilient, lowers energy costs for families, and helps protect U.S. family budgets against future shocks.”
• “This proposal addresses some of the country’s biggest challenges at a significant scale. And because it is deficit-reducing, it does so while putting downward pressure on inflation. We strongly recommend Congress act decisively to build a stronger economy by passing the Inflation Reduction Act as soon as possible.”

Larry Summers on CNN, 7/28: 

• “This is a good bill. This is an important step forward on inflation, which has been my preoccupation this last year. It’s historic on the environment. It’s going to make our society more fair and equal, at long last getting rid of the carried interest loophole. It’s going to take important steps forward on access to healthcare and it’s going to invest in the future of our country. So this is a very strong bill and I’m just delighted to see this agreement and I hope it all moves forward as expeditiously as possible.”
• “This reduces budget deficits, and so by reducing budget deficits it reduces the level of demand in the economy. Second, this reduces prices directly by going after prescription drugs and getting lower prices and a better deal for taxpayers when they purchase prescription drugs. Third, this increases supply by stimulating energy production and by subsidizing and supporting our energy transition to renewables. So less demand, more supply, and direct better bargaining for lower prices, those are the things that are involved in reducing inflation.
• “This bill is more than paid for. I think if you use realistic revenue estimates, and you assume that the huge progress on tax compliance, on collecting the money that’s owed that now escapes taxation, trillions of dollars worth of it, if you use realistic revenue estimates, I think you’re raising more than $2 in revenue for every dollar that you spend. In that original bill that I criticized you were raising no dollars of revenue for every dollar you spent, and you were spending a vast sum of revenue, close to $2 trillion dollars, and you were spending it all in one year. Here, we are spending it over many years, and we’re raising far more revenue.”
• “This bill is fighting inflation and it’s got a whole set of collateral benefits as well, but it’s fair to call it the Inflation Reduction Act because it’s directly fighting the rate of inflation.
• [In response to Senators who may threaten to hold the bill up over the SALT tax] “I would say we have hostage taking in this world, and we’ve got enough hostage taking in this Senate, and they would be hostage taking America’s prosperity and middle-class families chance of not paying higher prices with inflation if they were to interfere with this bill.”
• “That’s a measure that is targeted at those with the highest incomes and they’re not the people who need the most support in our society right now.”

Joseph Stiglitz Statement, 7.28:

• “The compromise agreed to under the rubric of the Inflation Reduction Act of 2022 is far more than just an act addressing inflation—although it does that in several ways. It simultaneously addresses several key and long-standing problems facing our economy and society.”
• “A key driver of today’s inflation is the high cost of energy; the $369 billion investment in energy security and climate change will help bring down energy costs, as it takes an important step forward in protecting us from the ravages of climate change by lowering carbon emissions by some 40 percent by 2030. The costs we bear, year after year, as we repair the damage done by climate change—through wildfires and hurricanes and tornadoes and a host of other extreme weather events—lower our standard of living even more than today’s inflation, with the costs borne disproportionately by those of lower income, people of color, and future generations. Indeed, those costs are far larger and harder to rectify than the costs of deficits.” 

Jason Furman, Wall Street Journal Opinion, 7/28:

• “The Inflation Reduction Act, to which Sen. Joe Manchin and Majority Leader Chuck Schumer agreed Wednesday, is what the country needs now. It will help address one of the world’s biggest long-run challenges, climate change, while making progress on inflation. At the same time it will help protect the most vulnerable by extending tax credits for healthcare.”
• “In fact, it would reduce the deficit by more than $300 billion over the next decade. It could end up saving more than that, since properly funding the Internal Revenue Service will likely generate substantially more revenue than congressional estimators believe.”

Mark Zandi Tweet, 7/31:

• “As named, the Inflation Reduction Act will lean against inflation over the next decade. It also adds a bit to growth. And it is more than paid for with tax hikes on large corporations and the well-to-do. While modest legislation, there is plenty to like in the legislation.”

Maya MacGuineas, President of the Committee for a Responsible Federal Budget, 7/28: 

• “To fight inflation, we want policies that will increase supply or reduce demand. And this does both. Almost every one of these policies, in and of itself, will fight inflation. And on net, the entire package most certainly will.”

Maya MacGuineas, President of the Committee for a Responsible Federal Budget, Statement 7/29: 

• “The best thing Congress and the President can do to help avoid a recession is to help the Fed fight inflation. Lawmakers should be focused on legislation like the Inflation Reduction Act that could make the Fed’s job easier. Improved tax collection, drug savings, and deficit reduction would put downward pressure on inflation and help ensure fiscal policy and monetary policy are rowing in the same direction. […] With inflation and the national debt both far too high, it’s long past time that policymakers stop adding to the debt and shift focus to deficit reduction. The Inflation Reduction Act is exactly the kind of package lawmakers should put in place to help the economy in a number of ways.”