Congress Is Giving Energy Lobbyists a 3-Year Window to Keep Up to $2 Trillion in Subsidies

The House of Representatives passed its “one big, beautiful bill” on Thursday. The sweeping domestic policy legislation includes extensions of President Donald Trump’s 2017 tax cuts, increased funding for immigration enforcement and defense, and work requirements for Medicaid. The legislation is expected to add $2.3 trillion to the deficit. 

Notably, the bill accelerates the phaseout of several green energy subsidies that were passed in the Inflation Reduction Act (IRA). Starting in 2028, the bill’s technology-neutral production and investment tax credits for clean electricity will be fully phased out. (Earlier drafts of the bill left a partial credit available through 2032.) To qualify for these tax credits, projects will need to begin construction within 60 days of the bill’s enactment, reports The Hill. Tax credits for nuclear power will remain untouched through 2031. The energy clawbacks in an earlier version of this bill were estimated to raise $515 billion in revenue. 

While rollbacks are better than keeping these tax credits fully intact, the bill falls woefully short by not repealing the IRA completely. 

Signed into law in 2022, the IRA extended tax credits for green energy resources and created new ones for emerging technologies. The slew of new credits and subsidies was originally expected to cost $271 billion over 10 years. Within a year of its passage, the price tag of these provisions climbed to $536 billion and now stands at $1.2 trillion over 10 years. A recent analysis from the Cato Institute estimates that these subsidies could cost $1.97 trillion through 2034 and reach $4.67 trillion by 2050. One of the drivers of projected cost increases is the IRA’s technology-neutral tax credits that have no sunset date and would only expire when a 75 percent reduction (compared to 2022 levels) in greenhouse gas (GHG) emissions from the electricity sector is achieved. 

For some climate hawks, these costs may be a small price to pay for tackling climate change. But it’s important to note that the IRA, which was heralded as “the boldest climate bill ever” when it was passed, has done a poor job at reducing GHG emissions. 

“I don’t think you could throw that much money at industry and have nothing happen, but the latest emission data shows a lot less [emission reduction] than the initially projected benefit,” Philip Rossetti, senior fellow at the R Street Institute, tells Reason. Rossetti says it may take “some time” before hard numbers are available, but it’s “fair to say that the subsidies are under performing as a climate policy.”

While the IRA has failed as a climate policy, it has succeeded as a wealth transfer program. Wealthy households have been the largest beneficiaries of the bill’s tax credits for energy efficiency and electric vehicles. Meanwhile, over 90 percent of claimed green energy tax credits have gone to corporations with annual revenue of $1 billion or more. 

There are few things as permanent as a federal subsidy. By keeping these tax credits alive, Congress is giving industry groups a three-year runway to ramp up their lobbying efforts and keep these provisions in place. As the Cato Institute’s Adam Michel and Joshua L. Loucks write, “Subsidy-dependent industries don’t need a long offramp; they need a clear signal that the taxpayer-funded gravy train is over.”

With the bill now moving to the Senate, the House’s accelerated rollback might be the closest thing we see to a full repeal of the IRA. Energy lobbyists have begun to plead their case and several Republicans have called for a “targeted” approach to IRA reform. Others have said the House’s cuts to green energy tax credits won’t work.

The post Congress Is Giving Energy Lobbyists a 3-Year Window to Keep Up to $2 Trillion in Subsidies appeared first on Reason.com.