The limitless hidden costs of the IRA
We were told that the Inflation Reduction Act (IRA) would give us cheap “green” energy for “only” $400B in subsidies. In reality, the IRA has a limitless price tag.
We were told that the IRA would give us cheap “green” energy for “only” $400 billion in subsidies.
In reality, the IRA has a limitless price tag due to its 1) limitless number of years, 2) limitless dollars per year, 3) limitless harm to our grid.
The promise that for just $400 billion the IRA would give us cheap “green” energy never made sense.
If the “green” sources the IRA was subsidizing were actually on the verge of being cheap, they wouldn’t need to be subsidized.
If the IRA was trying to make low-carbon energy cheap—which is the only way to lower global CO2 emissions long-term—it would have focused on liberating low-carbon energy production from the anti-development “green” regulations that hold back nuclear, geothermal, and natural gas.
The real goal of the IRA was to pretend to do something about global CO2 so as to wildly enrich “green” companies that are unable/unwilling to compete on a real market—above all solar/wind companies, who successfully lobby to be paid a (subsidized) premium for unreliable power!
Given that the IRA’s promise of $400 billion in subsidies leading to lower costs was a lie, it should be no surprise that the $400 billion number is a total lie.
The IRA’s cost is limitless:
1. It lasts a limitless number of years
2. It costs limitless dollars per year
3. It does limitless harm to our grid.
1. The IRA lasts a limitless number of years
While we were led to believe the IRA’s “green” subsidies, mostly for solar and wind, would last 10 years, they actually continue indefinitely until America reaches an emission level even the Biden Admin says we won’t reach by 2050!
The IRA specifically states that its stream of lavish subsidies for green energy projects will last at least until 2032, but it will only end if the CO2 emissions of the electricity sector are below 25% of their 2022 levels. That is very likely to be far, far more than 10 years.1
Recent projections by the Biden Admin’s Energy Information Administration (EIA) indicate that the CO2 emissions of the electric sector will not go down to 25% of current emission levels before 2050! That means the IRA subsidies will last more than 26 years!2
Any calculation of the IRA’s cost needs to be based on a realistic projection of when electricity CO2 emissions will go below 25% of their current levels. And given the Biden Admin’s biases their after-2050 estimate should be suspected to be overly optimistic.
2. The IRA costs limitless dollars per year.
While IRA advocates and the CBO have calculated government expenditures on the order of $400 billion for the IRA’s energy and climate policies over the next 10 years, that could easily be an underestimate by a factor or 3 or more.
When the public hears a number like $400 billion in subsidies, few know that this is not a fixed number. It is an estimate based on how many companies choose to take advantage of the subsidies.
As Al Gore celebrated at the recent World Economic Forum, companies are scarfing IRA subsidies. Gore said he was “very encouraged” by the prospect of “actually open-ended” subsidies. Gore being “very encouraged” about subsidies means we should be “very discouraged” about cost.3
While the CBO and partisan analysis projected that the IRA’s green energy and climate provisions would cost less than $400 billion over a decade, analysis by Goldman Sachs indicates that the uncapped subsidies could balloon 3 times to $1.2 trillion.
As reported by the Wall Street Journal, by “Goldman’s estimate, the IRA tax credits will cost tens to hundreds of billions more than CBO estimated over 10 years.” This includes almost $400 billion of additional EV subsidies alone and over $80 billion more for solar and wind electricity generation.4
A huge IRA cost threat is that it subsidizes a percentage of project costs for solar, wind, and batteries. By artificially encouraging such projects, which are extremely mineral-intensive, it will compound the problem of rising “green” material costs—meaning even higher subsidies.5
In addition, investors in solar and wind are incentivized by the IRA to use particularly costly solar panels and wind turbines manufactured in the hostile environment of US regulations, which means higher subsidies for every project.
3. The IRA does limitless harm to our grid.
Not only will the IRA’s subsidies last far longer than the decade we were pitched, and not only will those subsidies likely be far higher per year than we were pitched, but—worst of all—the IRA has a limitless ability to harm our grid.
We’re in a growing electricity crisis caused by shutting down reliable power plants and not replacing them with reliable power plants.
The IRA’s response to this crisis is to double down on one of its main causes: subsidies for unreliable solar and wind.6
Why is America shutting down too many reliable power plants?
Two of the chief villains are the subsidies known as the Investment Tax Credit (ITC) and Production Tax Credit (PTC). These subsidies had expired. But the Inflation Reduction Act restored and extended them.7
The “ITC” and “PTC” solar and wind subsidies pay utilities to shut down or slow down reliable gas and coal plants whenever the sun shines or the wind blows. This defunds reliable plants, causing many to be shut down.
The IRA extends these ruinous subsidies indefinitely.
The IRA pretended to be pro-nuclear by adding nuclear to its subsidized forms of energy. But since nuclear overregulation makes new plants cost-prohibitive, the Inflation Reduction Act’s endless “clean energy” subsidies = endless solar and wind subsidies.
By expanding and extending subsidies to unreliable solar and wind, the IRA provides even greater incentives to retire reliable capacity in favor of unreliable green energy. This means more reckless endangerment of our grid’s reliability.8
As the ongoing reliable capacity crisis, demonstrated by California’s and Texas’s recent blackout fiascos, and their continuing shortages in capacity, government-forced and -incentivized solar and wind investments create additional cost.
Contrary to popular narratives, the TX blackouts of 2021, were an unavoidable consequence of overinvestment in unreliable wind power and lack of focus on reliable generation capacity.9
Estimates of direct losses related to the 2021 TX blackouts are $130B (~$13K per household).
Texans were told that thanks to all their wind farms, they had low electricity prices. They weren’t told was that the grid’s reliability had been harmed, meaning inevitable huge costs.10
Solar and wind subsidies not only drive the shutdown of reliable power plants and loot taxpayers, they also inflate electricity prices. Because solar and wind can go near-zero at any given time, they don’t replace most of the costs of reliable power plants—they add to them.11
Even before the IRA, government policy was already threatening up to 185 GW of coal power in the next 7 years—about 1/5 of reliable capacity!—with the vast majority not replaced by reliable gas or nuclear.
By increasing solar and wind subsidies the IRA will ruin our grid even more.12
At the same time the IRA is hastening the shutdown of reliable electricity generation, it is—insanely—promoting far more use of electric cars via subsidies. California recently previewed the IRA by telling citizens there wasn’t enough power for EVs even at 3% market penetration.13
To make matters still worse, the IRA not only drives the shutdowns of reliable electric capacity while subsidizing us into using more electric cars, it also coerces us into increasing electricity use in many other ways: electric heating, electric cooking, electric water heating.
If your goal was to ruin our grid you’d do exactly what Inflation Reduction Act does
1) reduce the supply of reliable electricity via solar and wind favoritism
2) increase demand for electricity via electric vehicle and other electricity subsidies
The IRA’s alleged $400 billion price tag for cheap green energy was a total lie. It has a limitless price tag, including expensive, unreliable green energy.
Congress should hold hearings documenting the IRA’s limitless length, cost per year, and harm to our grid.
The IRA fraud must end.
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