Emissions Reduction, Fiscal Costs, and Macro Effects: A Model-based Assessment of IRA Climate Measures and Complementary Policies

February 9, 2024

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Simon Voigts, and Anne-Charlotte Paret. Emissions Reduction, Fiscal Costs, and Macro Effects: A Model-based Assessment of IRA Climate Measures and Complementary Policies, (USA: International Monetary Fund, 2024) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The IMF’s Macroeconomic Model for the Energy Transition (GMMET) is applied to assess the climate-related measures in the U.S. 2022 Inflation Reduction Act (IRA). Explicitly accouting for corporate income tax funding and assuming no permitting delays for energy-related investment, the measures are expected to cut annual greenhouse gas emissions by 710 MMT by 2030, predominantly driven by more electricity generation from renewables combined with a rising share of electric vehicles. Aggregate output and inflation are not impacted significantly, while the fiscal costs amount to about $700 billion through 2030 (another $120 billion of fixed grants and loans are not modelled). In the presence of investment delays from permitting, emission cuts would be reduced by about a third. We also show that the IRA leaves room for sizable additional emission abatement at very low costs; by targeting electricity generation from coal and methane emissions from oil and gas industries.

Subject: Commodities, Electricity, Environment, Greenhouse gas emissions, Non-renewable resources, Renewable energy, Tax allowances, Taxes

Keywords: Climate change mitigation policy, Electricity, Emission cut, Global, Greenhouse gas emissions, Inflation Reduction Act, IRA climate measure, IRA measure, IRA package, Methane emission, Non-renewable resources, Renewable energy, Tax allowances, Western Hemisphere

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/024
Stock No:

WPIEA2024024
ISBN:

9798400268786
ISSN:

1018-5941

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