Emissions Reduction, Fiscal Costs, and Macro Effects: A Model-based Assessment of IRA Climate Measures and Complementary Policies
IMF Working Papers, February 9, 2024
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- Emissions Reduction, Fiscal Costs, and Macro Effects: A Model-based Assessment of IRA Climate Measures and Complementary Policies
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Bibliographic details
- Authors: Simon Voigts, Anne-Charlotte Paret
- Published: February 9, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400268786.001
Summary findings
- 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 accounting for corporate income tax funding and assuming no permitting delays for energy-related investment, the IRA measures are expected to cut annual greenhouse gas emissions by 710 MMT by 2030.
- Emission reductions are predominantly driven by more electricity generation from renewables combined with a rising share of electric vehicles.
- Aggregate output and inflation are not impacted significantly under the baseline assumptions.
Emissions impact
- Expected annual greenhouse gas emissions reduction: 710 MMT by 2030.
- Primary drivers: increased electricity generation from renewables; rising share of electric vehicles.
Fiscal costs and modelling scope
- Fiscal costs amount to about $700 billion through 2030.
- An additional $120 billion of fixed grants and loans are noted as not modelled.
Permitting delays scenario
- In the presence of investment delays from permitting, emission cuts would be reduced by about a third.
Additional abatement opportunities and cost implications
- The IRA leaves room for sizable additional emission abatement at very low costs.
- Targeted opportunities identified: electricity generation from coal and methane emissions from oil and gas industries.
Macro and sectoral effects
- Aggregate output: not impacted significantly under baseline assumptions.
- Inflation: not impacted significantly under baseline assumptions.
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