Fueling The Conversation, Week of May 12th, 2025
Despite campaigning against the harmful energy policies of the Biden administration, what to do about the Inflation Reduction Act’s (IRA) green energy tax credits remains an open question among congressional Republicans. Despite providing zero votes on the original IRA, Republicans are now split into two camps: members who want to fully repeal the IRA’s green subsidies and those who want to protect parts of its provisions.
The first group wants to take a “sledgehammer” to the IRA by eliminating all of its giveaways to green groups, solar, wind and electric vehicles while the second advocates for a “scalpel” to get rid of some of its components while maintaining others. The “scalpel” Republicans pose a major problem for implementing President Trump’s other priorities, such as extending the 2017 tax cuts and eliminating taxes on tips and overtime.
If Republicans sincerely want to move past the high energy costs of the Biden administration and create the conditions for energy abundance in the future, using the sledgehammer is the correct approach. Playing politics with IRA subsidies might help a handful of Republicans in the short-term who are perhaps benefiting from projects in their districts, but the long-term impacts of this market-distorting boondoggle, including higher electricity prices and risk of blackouts, will be far more negatively impactful to their constituents.
The real price of the IRA is significantly higher than the Congressional Budget Office originally estimated. Compared to an initial price tag of $370 billion, the Cato Institute estimates that the bill will cost between $936 billion and $1.97 trillion over the next 10 years, and between $2.04 trillion and $4.67 trillion by 2050, as the lack of restrictions on its subsidies mean there’s no limit to the amount of firms that can claim them. As these estimates show, maintaining the IRA will contribute to ballooning our already $36 trillion debt, leading to slower economic growth and higher interest costs for the foreseeable future, as well as the same high inflation that the bill was trying to end. In a report prepared by EY for the Institute for Energy Research, the EV subsidies alone are estimated to cost over $300 billion.
The IRA’s defenders counter that the bill’s giveaways should be thought of as investments in green energy technologies that will provide for more economic growth in the future as they develop. But investment for investment’s sake doesn’t contribute to growth; the investment needs to account for the opportunity cost of alternative uses of the funds. Solar and wind have been around for decades and remain inferior to reliable energy sources like coal and natural gas. despite decades of subsidies. Although both of these technologies have become cheaper over time, renewables will never overcome their inherent intermittency. To compensate for this problem, solar and wind producers need to overbuild panels and turbines and supplement their plants with batteries or natural gas to provide the same amount of energy as reliable producers.
The opportunity cost of the IRA is high because it precludes investment in more economical energy sources, such as natural gas, in favor of solar, wind, and a litany of green projects that have no clear benefits for anyone outside of the groups that receive the subsidies and grants. When the government picks economic winners and losers, everyone loses because the government lacks the market price signals that would allow for more efficient investments.
While this logic alone should be enough to convince Republicans that the IRA needs to be repealed, it should also be considered in the context of extending President Trump’s tax cuts. Repealing the IRA reduces spending, which means that Congress can partially offset the tax cuts. A Tax Foundation study found that the 2017 Tax Cuts and Jobs Act led to an average increase of 20% in domestic investment in the two years after its passage by affected firms relative to investment by unaffected firms and estimated a 0.9% increase in real wages in the long run. Every Republican wants results of this kind, and they can happen again if they garner the courage to repeal the IRA.
Repealing the IRA would mark a stark transition away from a whole-of-government approach to energy policy towards one that recognizes the importance of free-market principles. Republicans must pursue this course if they want to avoid higher energy costs and the risk of blackouts in the future. Bring out the sledgehammer.
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Fueling the Conversation, a weekly column by IER President Tom Pyle, offers a principled take on energy events. Energy underpins all aspects of modern life, so policies that artificially limit production hurt everyday people paying to heat their homes and driving to work. “Green” groups push these policies for idealogical reasons, but this column uses economic logic and hard facts to advocate for energy freedom.
