Beyond Clean Energy: The Financial Incidence and Health Effects of the IRA

The Inflation Reduction Act of 2022 (IRA), signed into law by President Biden in August 2022, promotes clean energy technologies, facilitates domestic energy production, and addresses global warming through a package of production and investment incentives paid for through the federal budget. This paper focuses on the IRA’s tax provisions targeted at grid-connected electricity generation. The IRA will affect households through changes in electricity prices and costs, the household tax burden, emissions of CO2 and other air pollutants, and public health. We use the Haiku electricity market simulation model to estimate changes in investment and generation by technology type compared to a no-policy baseline under several future scenarios. We examine changes in electricity expenditures and the tax burden to pay for the IRA using RFF’s Social Welfare Incidence Model. We also examine the health effects of emissions reductions and associated changes in premature mortality.  The modeling finds that the reductions of CO2 emissions in the electricity sector driven by the IRA are substantial and can be achieved at an average cost that is less than estimates of the social cost of carbon. The IRA’s pocketbook effects, through the cost shift from ratepayers to taxpayers, are progressive across income groups. The legislation’s air quality benefits are most evident in the Midwest and southern parts of the country.