Emissions Reduction, Fiscal Costs, and Macro Effects: A Model-based Assessment of IRA Climate Measures and Complementary Policies
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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.
Series:
Working Paper No. 2024/024
Subject:
Commodities Electricity Environment Greenhouse gas emissions Non-renewable resources Renewable energy Tax allowances Taxes
Frequency:
regular
English
Publication Date:
February 9, 2024
ISBN/ISSN:
9798400268786/1018-5941
Stock No:
WPIEA2024024
Format:
Paper
Pages:
31
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