U.S. Clean Energy Tax Subsidies to Cost $825 Billion Over 10 Years, CBO Says

The Congressional Budget Office (CBO) has revised its estimate for the cost of U.S. clean energy tax subsidies under the Inflation Reduction Act (IRA), indicating that these incentives will total $825 billion over the next 10 years. This significant increase from the initial $270 billion estimate highlights the substantial financial implications of these subsidies and their potential impact on the U.S. budget and economy.

The higher cost estimate is attributed to two main factors: a different budget window (2025-2035) and subsequent rule changes that have increased the uptake of electric vehicle subsidies. These factors have led to a more comprehensive assessment of the legislation's impacts, resulting in a higher cost estimate.

The increased cost of clean energy tax subsidies under the IRA could have several implications for the political landscape and future policy decisions regarding clean energy subsidies. The higher cost estimate may lead to political pressure from both sides, with some Republicans advocating for reducing or eliminating certain provisions and some Democrats pushing for maintaining or even expanding the subsidies to support the clean energy transition.

The higher cost estimate may also prompt lawmakers to reevaluate the fiscal responsibility of the clean energy subsidies, potentially leading to budget constraints and increased scrutiny of the legislation's affordability and sustainability. The upcoming U.S. presidential election adds uncertainty around the future of IRA clean energy incentives and subsidies, with a Harris administration likely maintaining the status quo and a Trump administration potentially taking aim at certain pieces of the legislation.

Despite the potential political pressure and uncertainty, the secular inertia behind the U.S. energy transition is likely to continue. The renewable share of U.S. final energy consumption is still relatively low (8%), and the journey towards a cleaner energy mix has just begun. Investors should remain aware of the evolving dynamics in the clean energy sector, as policy incentives, hyperscaler demand, and grid inefficiencies continue to shape the market.



In conclusion, the increased cost estimate of $825 billion for U.S. clean energy tax subsidies under the IRA will have significant impacts on the U.S. budget and economy over the next decade, potentially straining the federal budget, influencing economic growth and competitiveness, and sparking political debates. The higher cost estimate may lead to political pressure from both sides, reevaluation of fiscal responsibility, and uncertainty around the future of these subsidies due to the upcoming presidential election. However, the secular inertia behind the U.S. energy transition is likely to continue, and investors should remain aware of the evolving dynamics in the clean energy sector.