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Economy

IRA Cuts Would Sacrifice $1 Trillion of Economic Growth

Energy Innovation has some bad news for House Republicans.

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House Republicans are racing to overcome intraparty disagreements and deliver their “one big, beautiful” budget bill to the Senate before the Memorial Day weekend. As currently written, the bill would render the nation’s clean energy tax credits largely inaccessible, severely impairing clean energy development.

We now have a more detailed picture of what’s at stake if this bill or something like it makes it all the way to the president’s desk. The research firm Energy Innovation modeled all of the energy and environment provisions in the version of the bill that passed the House Budget Committee on Sunday night. It found that the proposed changes to oil and gas leasing, greenhouse gas emissions standards, and tax credits, could cost the United States more than $1 trillion in GDP over the next decade compared to a world where these policies remain untouched.

That number is a reflection of the narrow subset of policies the group modeled and does not take into account Trump’s tax cuts. In theory, those could have a positive effect on GDP that offsets some of the loss. But the effects on energy costs and jobs on their own tell a grim story.

By 2030, the average American would spend $120 more per year on transportation and home energy costs than they otherwise would. By 2035, the increase would climb to more than $230. Lower demand for clean technologies like electric vehicles and solar panels would kill more than 700,000 potential jobs across the economy in 2035.

Energy Innovation isn’t the only group warning of dire consequences. The bill “represents a crisis for America’s ability to build the energy infrastructure we need to meet surging demand,” Abigail Ross Hopper, the CEO and president of the Solar Energy Industries Association said in a statement yesterday. The group estimates that the bill would put 287 factories that serve the solar industry at risk of closing or never opening in the first place. Most of those are in red states.

The forecasts stem from key changes the GOP is proposing to make to tax credits that incentivize wind and solar development, domestic manufacturing, and consumer adoption of electric vehicles and energy efficiency upgrades. The bill would end these subsidies earlier than currently planned (though how much earlier is currently in flux), and impose stricter materials sourcing requirements, tighter development timelines, and more rigid project finance rules for the years they remain in effect, making it nearly impossible to use them.

As a result, fewer wind, solar, and energy storage projects would get built. Those that did get built would cost more, meaning that natural gas would set the price in energy markets more frequently. Natural gas would also be more expensive because of higher demand. The Energy Information Administration already expects natural gas costs to rise this year and next, even without changes to tax incentives. Altogether, generating electricity would cost about 50% more in 2035 than it otherwise would, according to Energy Innovation, which would translate to roughly 17% higher bills for consumers.

Budget hawks in the House are now pushing for an even more aggressive phase-out of the green tax credits before they agree to send their legislation to the Senate, and the Republican leadership can afford to lose just three votes on the floor, giving them a narrow window to please everyone. But the earlier phase-out would have little impact on Energy Innovation’s findings, Robbie Orvis, the senior director for modeling and analysis for the group, told me. The existing provisions in the bill that prevent companies from sourcing materials from China would be so difficult to meet that the model assumes the affected credits would be unclaimable beginning next year.

The modeling shows a similar effect in transportation costs. Terminating the tax credit for electric vehicles would lower demand for EVs and increase demand for gasoline, causing prices at the pump to go up. Less demand for EVs would also mean fewer domestic jobs producing them, and fewer jobs producing the components that go into them. Then there’s the overall tightening of purse strings that would come as a result of higher energy costs, which could reduce hiring still further.

Orvis said the estimates for job loss are likely conservative, as the model looks at changes in demand for EVs and other clean technologies but doesn’t do a good job accounting for the changes in supply that would result from early repeal of 45X, the clean manufacturing tax credit.

Notably, energy costs go up in the model despite provisions in the bill that are designed to lower the cost of oil and gas. Those include more frequent lease sales and lower royalty rates for companies that pay to drill on federal lands and waters. But Energy Innovation found that demand-driven price increases more than offset any price declines resulting from these measures.

The tax credit termination also isn’t the only factor here. Energy Innovation included the House’s proposed repeal of the Environmental Protection Agency’s emissions standards for cars and trucks, which amplified the effects. This provision may not make it into the final text, however, as the special rules governing the budget reconciliation process in the Senate prohibit policies that aren’t budgetary in nature. As the nonprofit Environmental Defense Fund put it in a memo to reporters, the regulations were issued to protect public health, and while they do result in costs and benefits for Americans and companies, they do not change the federal budget. “Even if Republican leadership tries to claim any budgetary impacts here, they would be clearly incidental to the main purpose of the proposed legislation,” the group said.

Of course, at least seven Senate Republicans have been vocal about their disapproval of the House’s treatment of the tax credits, so the whole thing may still be subject to change.

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