Economic planet | Why is the cost of the Biden climate law increasing?

The estimated cost of President Joe Biden’s clean energy and climate agenda has doubled since the Inflation Reduction Act was signed into law a year and a half ago.

Almost all of this increase comes from the fact that aid is more requested than expected, and this can be explained, among other things, by the wording of certain regulations, analysts say. However, this cost overrun could be good for the planet… and for the American economy.

L’Inflation Reduction Actor Inflation Reduction Act, passed by Democrats in the summer of 2022, provides tax credits and other aid for green energy, to wean the country off fossil fuels.

Uncapped federal aid

Some of these credits have no ceiling: the more businesses and citizens request them, the wider the federal deficit becomes. This uncapped aid encourages manufacturers to build solar panel or wind turbine factories and encourages consumers to buy electric cars. Budgeters must estimate the popularity of these credits in order to predict their cost.

When the law was adopted, officials at the Congressional Budget Office calculated that energy measures would widen deficits by $391 billion from 2022 to 2031. These forecasts were revised upwards in the spring of 2023, then again on Wednesday: their cost doubled for the period 2022-2031. And by 2033, we will exceed 800 billion dollars.


The Biden law has boosted investment in U.S. green technology factories: solar panels, advanced batteries and the entire electric vehicle ecosystem.

Here’s what’s changed and how it affects emissions, the economy and the budget.

Clean energy production is booming

The law spurred investment in U.S. green technology factories: solar panels, advanced batteries and the entire electric vehicle ecosystem.

Rhodium Group, a consultancy that tracks energy and climate spending, and the Massachusetts Institute of Technology estimate that companies invested $44 billion in 2023 to manufacture clean energy products in the United States ; and they plan to spend much more in the future. These companies will benefit from tax breaks provided by law, directly or indirectly.

The popularity of the Biden climate relief package surprised federal forecasters and the Congressional Finance Committee. Budget Office officials now predict that by 2031, these measures will inflate deficits by 205 billion more than originally expected.

Good for electric cars

Forecasters now expect the electric vehicle purchase subsidy (up to $7,500) to cost much more than expected. This calculation is not based on past sales (they hit a record in 2023, but have been slowing for five months). It results from two incentive measures which will be quite effective, estimates the Budget Office.

The first has already been adopted and increases the number of eligible vehicles. Help to Buy does not apply to all electric vehicles (EVs) sold in the United States. The purchase subsidy is reserved for vehicles assembled in the United States with primarily American parts. But the wording allows for an exception: those who lease the vehicle, instead of buying it, can claim the subsidy even if their electric vehicle does not meet the domestic provenance requirements. It’s no coincidence that EV leasing exploded last year.

The other measure is a proposal from the Environmental Protection Agency that would require two-thirds of new cars sold in the United States to be fully electric by 2032. If the measure is ratified, it will encourage more Americans to claim the subsidy to drive electric. So less gasoline will be consumed… which will reduce federal gasoline tax revenues.

Green measures could help the economy

In 2023, Rhodium modelers estimated that the Biden law would significantly reduce US emissions (but not enough to meet the 2030 targets under the Paris agreement). But the rise in projected costs suggests the emissions reduction will be greater than last year’s estimate.

If the Biden plan is more successful, it could spur other countries to also act to reduce emissions and avoid catastrophic warming. Inaction would have an enormous economic and budgetary cost, the White House warned in 2022, estimating that doing nothing could reduce the size of the economy by 10% by 2100.

Additionally, the damage caused by warming could cost the government $1 trillion in today’s dollars in additional costs from floods, heat waves and other disasters within 10 years.

But the climate law worsens the deficit.

But it is more than a climate law. It also increases corporate taxes, subsidies for some people who buy health insurance and federal help for prescription drugs. She finally increases the budget of the Department of Revenue to crack down on businesses and high-income people who don’t pay their taxes. The net result, according to initial Budget Office estimates, was a slight reduction in deficits over 10 years.

But upward revisions to the costs linked to the law reverse these calculations and now lead to a slight increase in deficits by 2031, according to the Budget Office.

But Biden administration officials continue to argue that, on net, the law will reduce deficits.

This article was originally published in the New York Times.

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