IRA green energy tax provisions hurt America and help China

By U.S. Sen. Mike Crapo
R-Idaho

Members of Congress on both sides of the aisle have long recognized the need to reform our energy tax laws. But rather than work on stakeholder-informed, bipartisan energy tax policies that would support a technology-neutral approach, Democrats pursued a partisan path through their misnamed Inflation Reduction Act (IRA).  

Republicans warned the IRA would take us down a dangerous, fiscally irresponsible path to provide ever-ballooning subsidies, antagonize allies and, ironically, reward the very industries that are reliant on China. Unfortunately, what we warned of has come to pass, leaving Americans to deal with the fallout of these predicted consequences:

Soaring Costs: One consequence is the cost, which keeps rocketing upward by hundreds of billions of dollars. Cost estimates for the IRA’s energy tax incentives have increased markedly since the enactment of the law. Penn Wharton’s Budget Model originally estimated the climate and energy provisions in the IRA would cost nearly $385 billion.  

After new implementation details emerged, Penn Wharton revised the model, estimating the climate and energy provisions would actually cost upwards of $1 trillion. 

Inflation Driver, Not Reducer: While most of the focus has been on the fact the IRA is not forecasted to actually reduce inflation, some have persuasively argued it will actually fuel inflation.  

The theory behind this argument is that existing (and likely future) material supplies – both critical minerals and metals like copper and aluminum – are insufficient to meet forecasted demand for resources required to fuel a transition to an electricity-focused future, like batteries, electric motors and transmission wires. These supplies cannot be rapidly scaled up, whether at home or abroad. 

As more money chases constrained raw material supplies, costs will increase.  Given that many goods Americans use are also made from these materials, cost increases will ripple through the economy. 

Strained Relationships: To mitigate our trade partners’ anger on electric vehicles tax credits, the Biden Administration usurped congressional authority by redefining the long-understood concept of a market-oriented “free trade agreement” to now include agreements that fail to open any markets for American workers. Not only have these executive agreements caused significant foreign trade disputes with our allies, but they have also sparked bipartisan backlash from members of Congress. 

Disadvantages American Production: The rushed, disjointed policies at the heart of the IRA’s provisions have put American companies and consumers at a disadvantage. The Biden Administration has resorted to unilaterally walking back and diluting key guardrails at every opportunity. Each move supports manufacturing jobs overseas and cedes additional control of our supply chains to foreign competitors, as even some of my colleagues across the aisle have acknowledged. 

Advantages China: In China, economies of scale, supply chains and first-mover advantages ensure that for the foreseeable future, most of America’s green energy growth will be originating from the one place the IRA claims it should not. Gaping loopholes in the bill, like the “leasing exception” for EVs, as well as expansive regulatory guidance that undercuts key legislative guardrails will enable Chinese minerals, materials and entities to qualify for IRA subsidies reinforce America’s dependence on China for alternative energy.  

Meanwhile, the Administration’s rules and guidance may potentially exclude domestic players who are connected to traditional energy sources. 

We would do far better to roll back the IRA’s directives and heed Americans’ justified concerns with the forced shift to certain types of green energy that the Administration’s broad-based effort to eliminate traditional energy sources will lead to. Instead of increasing U.S. dependence on China and further encouraging manufacturing overseas, we must pursue a commonsense “all of the above” approach to America’s energy needs, and we must do it now.