A CLIMATIC EVALUATION OF THE INFLATION REDUCTION ACT OF 2022: THE FISCAL-ENVIRONMENTAL IMPACTS OF RESIDENTIAL ENERGY CREDITS

Abstract

The Inflation Reduction Act of 2022 (IRA) apportions unprecedented levels of federal investment toward climate change resolution, environmental preservation and energy reform; however, despite its colossal $391-billion climate budget, the bill ultimately fails to set the US on the ideal emissions curtailment pathway (i.e. net-zero by 2050), only achieving an estimated two thirds of the total desired emissions decrease. Given this shortcoming, this thesis explores the possibility of altering the IRA’s current allocation of resources so as to improve the bill’s projected emissions outcome, focusing specifically on provisions relating to residential energy tax credits for homeowners. Presently, consumers face a one-size-fits-all credit rate of 30%, which applies uniformly across all qualified energy-efficiency products/services. Upon estimating the cost-(in)effectiveness (measured by the ratio of total government revenue expected to be forfeited to total emissions expected to be eliminated) of subsidising five select products/services (i.e. heat pumps, insulation renovation, smart thermostats, smart windows and solar panels), the following result is obtained: the policy would likely be more optimal if credit percentages were unique for each product/service, specifically if the rank (from highest percentage to lowest) were 1) smart thermostats, 2) insulation renovation, 3) solar panels / heat pumps and 4) smart windows.