Emissions Reduction, Fiscal Costs, and Macro Effects: A Model-based Assessment of IRA Climate Measures and Complementary Policies

Simon Voigts and Anne-Charlotte Paret

No 2024/024, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Climate change mitigation policy; Inflation Reduction Act; IRA climate measure; IRA package; emission cut; methane emission; IRA measure; Greenhouse gas emissions; Electricity; Tax allowances; Non-renewable resources; Renewable energy; Global; Western Hemisphere (search for similar items in EconPapers)
Pages: 31
Date: 2024-02-09
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