Benefits of the Inflation Reduction Act on Public Health, Emissions, and More Outweigh Costs, New Research Finds
A new study from scholars at Resources for the Future finds that the Inflation Reduction Act, which was signed into law in August 2022, will create myriad net benefits for Americans through reductions in premature deaths, pollutant emissions, electricity prices, and more.
A new report from Resources for the Future (RFF), which builds on a high-profile issue brief released earlier this summer, introduces new analysis of the Inflation Reduction Act’s (IRA) effects on air pollution, household budgets, the energy generation mix, and more over the next decade. Notably, the modeling in the report shows that carbon dioxide emissions reductions in the electricity sector under the IRA will cost $43–$54 per metric ton on average—a cost lower than the current federal estimate of the social cost of carbon.
The IRA, signed into law by President Biden in August 2022, has been marked as a major step toward meeting the president’s goal of reducing emissions by 50–52 percent below 2005 levels by the end of the decade. The IRA’s climate provisions hinge upon production and investment tax incentives that promote clean energy and, by extension, reduce emissions. To calculate the effects of these tax provisions on American households, the research team utilizes two models—the Haiku electricity market model and the RFF Social Welfare Incidence Model—to chart the new law’s impact on the future under several scenarios compared to a “no-policy” baseline.
Here are the key findings:
- Carbon emissions: Under the IRA, annual electricity-sector emissions fall to 61–68 percent below 2005 levels in 2030, or by 1,615–1,792 million metric tons. This is compared to a projected 51 percent reduction under the baseline.
- Generation mix: Generation from clean electricity sources will rise to 69–75 percent of the United States’ energy generation mix in 2030, displacing natural gas and coal. Under the baseline, 56 percent of energy would be generated from clean sources in 2030.
- Electricity prices: The investment in clean energy technologies yields a reduction in electricity’s national average retail price of 5.7–7.8 percent over the next decade relative to the no-policy baseline. The average household will save $270–$320 in annual savings from smaller electricity bills and reductions in the costs of goods and services in 2030. (Noting that this figure is higher than what was estimated in the August 2022 issue brief.)
- Net financial outcomes: The transition to clean energy will result in a reduction in net annual household costs among the three lowest income quintiles of $66–$123. It will increase costs for the top income bracket by about $1,014. The average household will experience net benefits of roughly $1,000 in 2030, which includes financial impacts and monetized health and climate benefits.
- Air quality: The shift in the generation mix will result in a decline in emissions of sulfur dioxide by 37–63 percent and nitrous oxides by 36–53 percent by 2030. These pollutants contribute to the formation of PM2.5, a harmful particulate matter.
- Premature mortality: The emissions reductions resulting from the IRA could reduce annual premature mortality by 692–1,300 lives in 2030, yielding $12–$22 billion in monetized benefits. These health benefits are greatest in the Midwest and Southeast.
“Quantitatively, this is a major piece of legislation,” said Karen Palmer, coauthor and director of RFF’s Electric Power Program. “It’s also notable because the IRA is just one piece in a larger legislative puzzle to reduce emissions: the Infrastructure Investment and Jobs Act and the more recent CHIPS Act also provide billions of dollars for clean energy infrastructure and investment. These two other policies will likely amplify the impacts of the IRA that we identify here.”
“Our analysis suggests that the IRA is an economically progressive policy,” added RFF Senior Fellow and coauthor Dallas Burtraw. “It’s paid for by an increase in the corporate income tax and will reduce electricity costs that disproportionately burden low-income households. Further, the literature suggests that efficiency losses from taxation will be balanced by efficiency gains from reducing the price of electricity.”
“There is one key lesson here,” said lead author and RFF Senior Research Analyst Nicholas Roy. “The benefits that we find here are an indication that although the up-front price tag of addressing climate change is high, the cost of inaction is much higher.”
For more, read the report, “Beyond Clean Energy: The Financial Incidence and Health Effects of the IRA,” by RFF scholars Nicholas Roy, Maya Domeshek, Dallas Burtraw, Karen Palmer, Kevin Rennert, Jhih-Shyang Shih, and Seth Villanueva. For an overview of the findings, read the associated two-page summary.
Resources for the Future (RFF) is an independent, nonprofit research institution in Washington, DC. Its mission is to improve environmental, energy, and natural resource decisions through impartial economic research and policy engagement. RFF is committed to being the most widely trusted source of research insights and policy solutions leading to a healthy environment and a thriving economy.
Unless otherwise stated, the views expressed here are those of the individual authors and may differ from those of other RFF experts, its officers, or its directors. RFF does not take positions on specific legislative proposals.
Karen Palmer is a senior fellow at Resources for the Future and an expert on the economics of environmental, climate and public utility regulation of the electric power sector.
Senior Research Analyst
Nick Roy is a Research Analyst at RFF where he analyzes an array of policies including clean energy tax credits, renewable energy standards, and emissions pricing.
Darius Gaskins Senior Fellow
Dallas Burtraw is a Darius Gaskins senior fellow at RFF. Burtraw’s research includes analysis of the distributional and regional consequences of climate policy and the evolution of electricity markets including renewable integration.
Jhih-Shyang Shih is a fellow at RFF. His research interests lie in integrated system analysis of environmental and resource policy and decisionmaking.
Report — Oct 7, 2022
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