The Real Cost of the Inflation Reduction Act Subsidies: $1.2 Trillion

By Goldman’s estimate, the IRA tax credits will cost tens to hundreds of billions more than CBO estimated over 10 years. The forecast misses include electric vehicles (difference: $379 billion), green energy manufacturing ($156 billion), renewable electricity production ($82 billion), energy efficiency ($42 billion), hydrogen ($36 billion), biofuels ($34 billion) and carbon capture ($31 billion).

Goldman says the difference in the EV credit estimates owes to its projection that more vehicles will meet the law’s “self-sufficiency” mineral and battery material conditions for the partial $3,750 consumer credit and full $7,500 credit. But even Goldman’s estimate for the EV credit could be low if Treasury loosely interprets the credit conditions, which is what auto makers are lobbying for.

Auto makers are also racing to take advantage of a tax credit for locally manufactured battery cells and modules by setting up plants in the U.S. Similar to Goldman’s estimate, an analysis last month by Mercatus Center fellow

Christine McDaniel

projected that the tax credit for battery production could cost up to $196.5 billion.

Ford’s

Michigan plant with Chinese battery maker CATL alone could cost $1.5 billion annually in credits. Goldman estimates the tax credit could shave the cost of battery production by 35% to 42%, though EVs would still cost 17% more than vehicles with internal combustion engines. While tax credits will improve auto maker EV margins, it’s not clear whether they will make EVs profitable.

Goldman predicts the IRA will “drive” $3 trillion in climate investments—that is, reallocate $3 trillion in capital across the economy. Oil and gas companies will spend less on increasing production and more on developing carbon capture technologies, hydrogen and biofuels that are profitable only with the IRA’s rich tax credits. Expect energy prices to rise.

Goldman says green subsidies will benefit companies across the economy—from aluminum manufacturers to agriculture producers. This will make it politically more difficult for Republicans to roll back the subsidies if they gain control of the White House and Congress. Subsidies will also be “deployed meaningfully” in states like Texas with large GOP Congressional caucuses, Goldman notes.

Eliminating the tax credits, Goldman adds, would constitute an “effective tax increase,” which Republicans may be loath to vote for. Florida Gov.

Ron DeSantis

last year vetoed a bill that would have scaled back rooftop solar subsidies after the solar lobby denounced it as a “tax.” Will Republicans have the courage to claw back the green handouts going to their business friends?

Democrats have created an enormous new corporate entitlement whose costs will increase on autopilot and blow up the deficit while raising energy prices for average Americans. Congratulations, Sen. Manchin.