According to the latest estimates from the Congressional Budget Office (CBO), the cost of the climate initiatives outlined in President Joe Biden’s Inflation Reduction Act (IRA) will exceed initial projections by over $400 billion. The CBO’s budget and economic outlook for the next decade revealed the increased cost of $428 billion. The agency acknowledged the uncertain nature of their projections, attributing the potential variables to the deployment of low-emissions technologies, electric vehicles, and the uptake of certain tax credits introduced in the IRA by taxpayers. The CBO’s original estimate in 2022 pegged the cost of the IRA’s climate and energy provisions at around $400 billion, which was widely seen as conservative. However, various organizations, including Credit Suisse and the University of Pennsylvania Wharton School of Business, presented higher estimates, with some suggesting costs exceeding $1 trillion.
The CBO pointed to technical revisions as the reason behind the considerably higher projections, with a significant portion stemming from clean vehicle tax credits and excise taxes on gasoline. The increased projections were also attributed to the Environmental Protection Agency’s proposal to impose stricter vehicle emissions standards, particularly beginning with the 2027 model year. The Treasury’s guidance regarding credits claimed by businesses for leased vehicles, as well as the response of dealers and buyers to the guidance by leasing more electric vehicles, were also factors contributing to the higher cost estimates.
In addition to the impact of Biden’s climate initiatives, the CBO’s report painted a concerning outlook for the nation’s economy. The agency projected a mounting deficit, which is expected to reach $2.6 trillion in 2034, up from $1.6 trillion in the current fiscal year. The deficit, as a percentage of GDP, is projected to reach 6.1% in 2034. The CBO warned that these deficit levels were reminiscent of those experienced during some of the nation’s most significant crises, with debt held by the public expected to increase to 116% of GDP by 2034 and further rise to 172% of GDP by 2054. This trajectory would mark an all-time historical high for the nation, primarily attributed to increases in mandatory spending and interest costs outpacing declines in discretionary spending, revenue, and economic growth.
