Cato Institute: Green New Deal may cost $4.7 trillion by 2050
The Cato Institute released a new report this month estimating the staggering costs of the 2022 Inflation Reduction Act. The 2022 law could cost a staggering $1.97 trillion by 2034, and could cost $4.67 trillion by 2050.
Recall that the Congressional Budget Office (CBO) originally estimated that the energy-related IRA subsidies would cost about $383 billion over 10 years. A 2023 Goldman Sachs report later estimated that the 10-year cost would be $1.2 trillion. The Cato Institute’s lower-bound estimate is $936 billion spent by 2034 (almost two and a half times CBO’s initial estimate), and could reach $2.04 trillion by 2050.
The IRA provided tax credits for electric vehicles, residential clean energy, energy efficiency, carbon sequestration, hydrogen, wind, solar, and more. Many of these credits are open-ended, with no expiration, and spending could vary wildly based on industry growth, market adoption, and technological advancements.
The Cato Institute created a model to estimate a range of spending and deployment of subsidized technologies. The model assumes that offshore wind and new nuclear elects for an up-front investment tax credit (typically 30 percent of the construction costs), and others choose a 10-year stream of production tax credit payments. The PTC contributes a staggering $1.43 trillion, or 70 percent of costs in the lower-bound estimate, while that balloons to $2.38 trillion of costs in the higher-bound estimate.
The Cato Institute recommends that Congress should repeal all the energy subsidies in the IRA or, at a minimum, cap the total spending on energy subsidies and require budget experts to publish “transparent and updated estimates” of the IRA’s long-term costs:
“The American people and our elected representatives cannot make informed decisions about the IRA without an accurate assessment of its cost, and we should not have had to wait two years to understand the IRA’s impact on the budget.
Further, Congress should stop issuing blank-check subsidies with no expiration date. The massive cash transfer from taxpayers to private firms under the guise of environmentalism creates an overwhelming and undue burden on taxpayers who continue to pay for fiscally irresponsible federal spending.”