Key Takeaways
According to an analysis by the Cato Institute, the Democrat-passed Inflation Reduction Act (IRA) could cost taxpayers trillions of dollars, far from the estimated $369 billion CBO said it would cost at its passage.
Congress has a chance to save enormous amounts by cutting IRA subsidies. This would also strengthen the electric grid, which is being weakened by increasing amounts of intermittent subsidized power and forcing the closure of baseload power plants.
Power demand is surging due to increased manufacturing, data centers, and AI, but the grid has become increasingly unstable due to a concentration of intermittent wind and solar projects. These projects require more transmission and backup power, which is contributing to rising electricity costs.
The IRA also funds the Greenhouse Gas Reduction Fund, a slush fund that pours tens of billions of dollars into politically connected groups for “green” projects.
President Biden’s signature climate law, the Inflation Reduction Act (IRA), provided green energy with huge subsidies costing taxpayers well over $1 trillion, despite being estimated to cost $369 billion by the Congressional Budget Office (CBO). One reason is that there is essentially no cap on the freebies awarded to green energy because the national emissions test used to sunset the law’s tax credits is unlikely to be reached. No matter how many windmills and solar plants are built, they will continue receiving tax credits, despite those technologies being around for decades. Congress can remove those freebies, but some members are advocating for keeping them or phasing them out, despite their increasing distortion on energy markets. The IRA was passed as a budget reconciliation package on a straight party-line vote in August 2022.
Congress established the wind production tax credit in 1992 and the solar investment tax credit in 2005 to support these industries and to help them grow. These technologies now represent 16% of the electricity market, while supplying less than 3% of total U.S. energy needs. According to the Cato Institute, the two subsidies could cost $130 billion annually by 2034, and all green subsidies could cost taxpayers $4.7 trillion through 2050. The original CBO 10-year score significantly underestimated the subsidy payments authorized by the IRA. Third-party estimates of the IRA’s 10-year budget score, such as the Goldman Sachs estimate of $1.2 trillion, fall comfortably between Cato’s lower- and upper-bound estimates for the upcoming 10-year budget window. It is important to note that the cost is 3 times more than the estimated cost of the IRA at the time of its passage by the CBO.
Besides costing taxpayers bundles of money, these subsidies have also destabilized the electric grid, as the technologies they fund are intermittent and weather-driven. Other technologies (coal and gas generators) are being used as back-up power, hurting their economics because their costs spread over far fewer hours of operation, as grid operators dispatch wind and solar plants with no fuel costs first. Some states are supplementing their wind and solar plants with very expensive storage batteries that can store excess power until needed. The result is higher electricity prices for consumers, which have increased 25% since Biden became president and favored green technologies. Heavily subsidized intermittent sources, therefore, add costs to ratepayers by distorting the market, producing a “double whammy” for prices overall.
The grid distortion caused by the wind production tax credit can sometimes make wholesale power prices negative, which means other generators would need to pay the grid for their power. Wind producers can still make money when wholesale prices fall below zero because of the value of the production tax credit, but other power plants lose money. Due to the distortions, many fossil fuel and nuclear power plants have had to shutter despite electricity demand increasing from artificial intelligence (AI) data centers and manufacturing. The loss of these potential baseload generating units is wreaking havoc with available supplies in light of the surging demand, leaving large consumers scrambling to secure dedicated generation.
The IRA also provided a slush fund for green projects totaling in the billions. Environmental Protection Agency (EPA) Administrator Lee Zeldin found $20 billion in “Greenhouse Gas Reduction Funds” that he wants to reclaim. The Biden administration had given the grant money to Citibank for holding before dispersal to a number of green non-governmental organizations, some of which had been formed very recently specifically to receive the funds. President Biden and his administration chose to do so because they could not finish all the paperwork to distribute the money before Biden had to exit the presidency. According to Zeldin, “This scheme…was purposefully designed to obligate all of the money in a rush job with reduced oversight.” The Greenhouse Gas Reduction Fund (GGRF) is a large spending program designed to provide money to coalitions of green groups that theoretically use the funds to finance green technology and other similar projects. While the eight funding recipients have only tapped into a small amount so far, the arrangement used by Biden personnel restricts the Trump administration’s ability to get the funds back.
As an example of the absurdity of the slush fund, in April 2024, Biden’s EPA awarded Power Forward Communities a $2 billion grant as part of the agency’s GGRF program. Power Forward Communities was founded in October 2023 as a coalition of groups led by Rewiring America, a left-wing group that advocates for electrification policies and a transition from fossil fuels. Stacey Abrams serves as Rewiring America’s senior counsel. According to tax filings, the absurdity of the award is that Power Forward Communities reportedly managed just $100 in total revenue during its first three months in operation. The example raises the issue that if the GGRF projects were viable, they should have been able to acquire financing from the private sector and not need massive handouts from the federal government. The funds appeared to be awarded more to political allies than to those specializing in energy projects.
Conclusion
Congress has the opportunity to benefit the American taxpayer by removing IRA subsidies for green technologies that were passed solely by Democrats in 2022. While the CBO estimated the IRA subsidies at $369 billion, actual costs will likely be at least 3 times as much to support technologies that have been around for decades and should be viable without federal government support. Wind and solar power also distort the grid because they cannot operate 24/7, meaning they must have back-up power from expensive storage batteries or other technologies that may not operate long enough to recover their costs, so many are forced to shutter. Congress could slow the rate of electricity price increases and save taxpayers huge sums by stopping the counterproductive subsidies lavished upon intermittent wind and solar in the IRA. The IRA’s Greenhouse Gas Reduction Fund of $20 billion is another source of wasteful spending. The projects the fund covers should have been viable with private funding if they could truly add value to the energy transition. Stacey Abrams’ NGO’s $2 billion grant is an example of the absurdity of the fund.
