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

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

No 31621, NBER Working Papers from National Bureau of Economic Research, Inc

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, data-rich microsimulation, and air pollution models to estimate the policy incidence in terms of economic welfare and health impacts across a wide range of demographic groups. We evaluate the tradeoff between policy efficiency and income progressivity by comparing the tax credits to cap-and-trade policies that vary revenue recycling approaches. Under the scenarios analyzed the bulk power tax credits lead to increased clean electricity technology deployment 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 both economic welfare and health impacts. The health benefits exceed total policy costs and provide greater benefits for low-income and historically-marginalized households given the coincidence of household and emission source locations.

JEL-codes: Q43 Q48 (search for similar items in EconPapers)
Date: 2023-08
New Economics Papers: this item is included in nep-ene, nep-env, nep-hea, nep-pbe and nep-reg
Note: EEE
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Published as 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. in Distributional Consequences of New Energy Technologies and Policies , Hausman, Levinson, and Li. 2024

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