CBO: Inflation Reduction Act Costs Surge Due to Higher-than-Projected Investment in EVs, Wind, and Solar

The Inflation Reduction Act: Higher Costs and Climate-Friendly Technology

The cost of the Inflation Reduction Act‘s energy and climate provisions is set to exceed previous projections due to increased investment in climate-friendly technology. This update comes from the Congressional Budget Office (CBO), which recently revised its projections.

The CBO’s Revised Projections

According to the CBO, the energy tax credit-related provisions of the Inflation Reduction Act will incur significantly higher costs than initially anticipated. CBO Director Phillip Swagel stated that “the costs of energy-related tax provisions are much higher than the staff of the Joint Committee on Taxation originally projected.”

Factors Behind the Higher Costs

The CBO cited several factors contributing to the increased costs. One significant factor is the greater number of individuals expected to claim tax credits for electric vehicles. Proposed environmental regulations are driving the market in that direction, while the Treasury Department offers flexible guidance for these credits.

Additionally, there has been more investment than anticipated in battery manufacturing, as well as wind and solar power development.

Revised Cost Projection

The CBO now estimates that the energy provisions of the Inflation Reduction Act will cost $428 billion more than originally projected. While the surge in tax credit claims plays a significant role, the agency also mentions a reduction in projected revenues from gasoline excise taxes due to technical factors.

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