Status: Published
Citation: Bistline, J., N. Mehrotra, and C. Wolfram. 2023. Economic Implications of the Climate Provisions of the Inflation Reduction Act. 2024. Brookings Papers on Economic Activity 19(1): 014013.
The Inflation Reduction Act (IRA) includes a range of incentives to decarbonize the U.S. economy, but its breadth and complexity make modeling important for understanding its potential impacts. This paper summarizes the climate and energy provisions of IRA and assesses its potential economic impacts. Model results indicate that substantially higher investments in clean energy and electric vehicles imply that IRA’s fiscal costs may be larger than initial projections, though even at the high end, IRA provisions remain cost-effective. IRA’s impacts may be especially large on power sector investments and electricity prices according to modeled scenarios. The analysis suggests small macroeconomic effects, including a small decline in headline inflation; however, macroeconomic conditions—especially higher interest rates and materials costs—could significantly lower clean energy investment. The paper also provides quantitative comparisons of tax credits vis-à-vis carbon pricing and discusses potential implications for technological change and distributional outcomes.
Link to Journal Publication: Economic implications of the climate provisions of the Inflation Reduction Act | Brookings