Climate Initiatives In Biden’s Inflation Reduction Act Will Cost Over $400 Billion More Than Initially Expected, CBO Says

The climate initiatives outlined in President Joe Biden’s Inflation Reduction Act are more expensive than expected: the latest estimates put it at over $400 billion.

The Congressional Budget Office revealed that the cost of the budget and economic forecast for the next decade had increased by $428 billion. The agency acknowledged that its projections are subject to change. It cited variables like the pace and use of low emission technologies and electric cars, as well the number of tax payers who have not claimed certain tax credits enacted under the IRA.

CBO stated that “the budgetary effects of energy tax provisions are highly uncertain”.

In 2022, the CBO estimated that climate and energy provisions of the IRA would cost approximately $400 billion. Other corporations and organizations, however, said that the number was too low.

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Credit Suisse, a global investment banker, estimated that climate initiatives will cost more than $800 billion shortly after CBO’s estimate. This number is close to CBO’s latest estimate.

Other recent estimates from outside sources have been higher. A report published in August by the University of Pennsylvania Wharton School of Business estimated that the IRA climate and energy provisions will cost taxpayers more than $1 trillion.

CBO explained the CBO’s explanation that technical revisions led to substantially higher projections. The majority ($224 billion), arose from tax credits for clean vehicles and revenue from gasoline excise taxes. The CBO explained that technical revisions resulted in the substantially higher projections. Most of this ($224 billion) came from clean vehicle tax credits and revenues from excise taxes on gasoline.

The Environmental Protection Agency’s (EPA) proposal from last year, which proposed to impose stricter vehicle emission standards starting with the 2027 model-year, was a major factor in the projections.

The CBO noted that Treasury guidelines determined that credit claims by businesses for leased cars were not subject to the restrictions that apply to credit claims by individuals. These restrictions include a buyer’s earnings, vehicle prices, locations of critical mineral suppliers, battery component manufacturers, and final assembly locations.

CBO said that “Dealers have responded by leasing more electric cars than [the Joint Committee on Taxation] had anticipated in its 2022 estimates.”

The CBO report did not give a positive outlook on the economy of the United States, except for the costs associated with Biden’s climate initiatives.

CBO predicted that the deficit of the United States would continue to grow, rising from $1.6 trillion this fiscal year to $2.6 trillion by 2034. The projected deficit in 2034 is 6.1% of GDP. According to the CBO, these deficit levels are similar to those that were experienced during some of our greatest national crises.

The report states that deficits exceeded this level since the Great Depression only during World War II and shortly thereafter, the 2007-2009 Financial Crisis, and the Coronavirus Pandemic.

The public debt would grow from 99% to 116% by 2034 (48.3 trillion dollars) and continue to increase until 2054 (172% GDP), up from 99% at the end this year (26.2 trillion dollars).

CBO estimates that the 2034 estimate will be a historical high. This is due to an increase in mandatory spending, interest costs, and revenue, which outpaced the decline in discretionary expenditures, as well as economic growth and revenues.