The Inflation Reduction Act (IRA) of 2022 provides huge tax and investment credits for buying electric vehicles, home solar panels, heat pumps, energy-efficient home appliances and other so-called clean energy initiatives. The cost of these incentives is estimated by the Congressional Budget Office (CBO) to be at $369 billion between fiscal years 2022 and 2031. (Related: Biden's Inflation Reduction Act imposes fee on greenhouse gas emissions.)
But a report from multinational investment bank Goldman Sachs revealed that the real cost could be closer to $1.2 trillion. The report added that the $1.2 trillion in government expenses will lead to the release of another $3 trillion in investment by businesses and individuals to build and expand climate-friendly ventures.
A source familiar with the report described the bank's projection as "probably too high." Nevertheless, these green "incentives" could be 1.5 to two times bigger than the original CBO forecast depending on how the law is enforced.
Committee for a Responsible Federal Budget (CRFB) Senior Vice President Marc Goldwein said electric vehicle (EV) tax credits account for more than 50 percent of the cost of Biden's green energy policies. The IRA offers a "self-sufficiency" credit for EV buyers amounting to either $3,750 or $7,500 based on the mineral and battery components of the vehicle. Goldwein stated the CBO seems to have estimated that relatively few vehicles would qualify for the credit, while Goldman Sachs assumed the opposite view.
"They seem to think that 70 percent of new cars will be electric by 2030, which is far above other estimates. The Biden administration's aspirational target is 50 percent. And estimates I’ve seen from other groups range from 25 to 40 percent," Goldwein said in an interview.
The Goldman Sachs predictions cover 2022 through 2032, a year more than the time period studied by the CBO. Goldwein added that employing the exact time frame as the CBO's would lower the Goldman Sachs projection to about $930 billion..
The Biden administration said consumers will reap huge benefits from the IRA – including $14,000 in consumer rebates for energy-efficient heating and other home appliances and a 30 percent tax credit on home solar panels, which would save some $9,000 over the life of the installation.
Goldman Sachs predicted a considerable benefit for corporations – in the form of bigger profits – as they respond to changes in regulation and consumer behavior.
Meanwhile, the Biden administration predicted the production of 950 million solar panels, 120,000 wind turbines, and 2,300 grid-scale battery plants by 2032. Sources familiar with the Goldman Sachs report also remarked that oil, gas and other industries will distribute up to $3 trillion in capital to create fuel sources that are presently profitable only with tax credits given by the IRA.
"If it's going to be significantly more expensive, we ought to put some tax safeguards in place to keep those costs under control," remarked Goldwein, adding that those safeguards could come in the form of a cap on either the number of qualifying vehicles or the total amount paid in tax credits.
Goldman Sachs declined to provide a copy of its findings while the White House didn't provide a comment on the bank's predictions.
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