R Street testifies on the effects of the Inflation Reduction Act to the House Select Committee on the Climate Crisis
The R Street Institute’s Philip Rossetti, senior fellow on the Energy Policy Team, testified before the House Select Committee on the Climate Crisis on the Inflation Reduction Act (IRA) and its impact on climate change. Rossetti focused his testimony on three key points:
- Subsidies in the IRA. The volume of subsidy in the law accounts for the expected benefits being applied to it. For example, two-thirds of the clean electricity subsidies would go to generation that is expected to be built out regardless of whether the IRA was signed into law.
- Regulatory constraints on the IRA. Analyses of the IRA’s environmental benefits are too optimistic because they do not consider regulatory constraints on clean energy in the marketplace that are not addressed by the law.
- Cost of the IRA. Substantial portions of the cost of the IRA will fall on corporate workers and other Americans, so all potential benefits must be balanced with this in mind.
Rossetti was the only individual who raised the implicit tradeoffs in the legislation and whether the environmental benefits could outweigh the economic harms from higher taxes. For example, while the political narrative is often that only the rich bear these taxes, Rossetti cited estimates from the Joint Committee on Taxation which suggest that all income groups will face higher taxes under the IRA. Green energy subsidies in the law, meanwhile, will largely benefit middle- and upper-class Americans in the form of subsidies for electric vehicles.
The hearing also focused on the “job creation” aspects of the legislation. However, estimates of job creation cited at the hearing, according to Rossetti, were predicated on expected increases in labor demand in sectors stimulated by additional subsidy. From his point of view, the IRA does not increase capital availability in the economy; it merely redirects it through tax and spending, making it more likely to reduce overall employment. This is why, as he pointed out, the Tax Foundation notes the IRA will result in 29,000 lost jobs.
A rare point of bipartisan agreement during the hearing, and a significant point of Rossetti’s expertise and R Street’s focus, was around permitting reform, which is critical for the IRA’s spending to be utilized effectively. It was clear that members of Congress on both sides of the aisle were concerned about research showing that the IRA’s benefits are contingent upon further infrastructure development, which often takes years.
Rossetti’s testimony highlighted that no policy is without tradeoffs: there are benefits to the IRA, barriers to attaining them and costs to increased government spending.
