Tax Credits for Clean Electricity: The Distributional Impacts of Supply-Push Policies in the Power Sector

Maxwell Brown, Jonathon M. Becker, Jared C. Carbone, Teagan Goforth, James McFarland, Destenie Nock, Kristina Pitman and Daniel Steinberg

Journal of the Association of Environmental and Resource Economists, 2024, vol. 11, issue S1, S199 - S229

Abstract: We evaluate distributional and efficiency consequences of the bulk power clean electricity tax credits authorized by the 2022 Inflation Reduction Act. To do so, we link detailed electricity capacity expansion, computable general equilibrium, microsimulation, and air pollution models to estimate economic welfare and health incidence across demographic groups. We evaluate trade-offs between policy efficiency and income progressivity by comparing the tax credits to cap-and-trade policies. The tax credits encourage increased clean electricity investment, resulting in a reallocation of capital from elsewhere in the economy, higher prices for capital and other goods, lower power prices, and lower emissions. The tax credits yield progressive outcomes for economic welfare at the expense of efficiency while all modeled policies demonstrate progressivity in health impacts. The health benefits, absent climate benefits, exceed total policy costs and provide greater benefits for low-income and historically marginalized households given coincidence of household locations and emissions exposure intensity.

Date: 2024
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