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

Author

Listed:
  • Simon Voigts
  • Anne-Charlotte Paret

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.

Suggested Citation

  • Simon Voigts & Anne-Charlotte Paret, 2024. "Emissions Reduction, Fiscal Costs, and Macro Effects: A Model-based Assessment of IRA Climate Measures and Complementary Policies," IMF Working Papers 2024/024, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2024/024
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