The so-called Inflation Reduction Act (IRA) has been marketed to the American people as a solution to the Biden economy’s biggest problems. It’s chief purpose, of course, is in the title. In reality, a University of Pennsylvania study found the IRA will have no real effect on inflation and over 230 economists warned it will actually make it worse. Other studies found that over the next 10 years, the IRA policies could result in 900,000 lost jobs, an annual GDP reduction of 1.2%, and a drop in average household income by roughly $1,200. As the law’s proponents seek to salvage its image, they are now making new claims including one that it will make energy cheaper. 

Amidst the backdrop of painfully high gas and expensive electricity bills where one in six American families are now behind on their utility payments, Americans deserve to know: Will the Inflation Reduction Act actually lower energy costs?  

“We know the cost goal is pretty audacious …the Inflation Reduction Act is a significant component in reducing costs of all kinds of energy.”
Secretary of Energy Jennifer Granholm

Mostly false or misleading. Significant errors or omissions. Mostly make believe.

Claims the IRA will provide energy cost relief are misleading at best.

Many of the bill’s proponents are purposely conflating future potential savings based on wonky energy-use models, which I’ll discuss more below, with providing relief to the current, high price situation. To the extent any of these cost “savings” will be realized, it will be decades into the future. And there is nothing in the bill that will provide relief to high-cost gas and increasingly expensive electricity nor change the trajectory of reduced grid reliability. The IRA actually stands to make each of our current energy problems worse. 

First, there are the upfront costs. The Inflation Reduction Act is spending $368 billion of taxpayer funds on a variety of “climate and clean energy” initiatives. This includes $280 billion in tax credits and the buildout of preferred energy sources like wind, solar, and hydrogen. There are also the upfront costs of building necessary back-up for these renewable energy projects because they do not work all of the time. When the wind stops blowing and the sun stops shining, traditional energy, usually in the form of natural gas, fills the energy gap. The costs of this back-up are not covered by the IRA funds so these expenses will ultimately be borne by the ratepayer.  

The IRA also spends taxpayer funds to heavily subsidize electric vehicles and seeks to electrify city buses as well as medium and heavy-duty trucks. These technologies are not only more expensive but also have a range of technical problems. As a point of comparison a new diesel powered bus cost around $650,000 and reliably lasts for 12 years while a new electric powered bus cost around $950,000 and have run into major operational issues early on. 

Once getting past the billions of upfront costs, we can discuss the purported “savings”. Defenders of the IRA are pointing to a newly-released study that assessed the law’s impact on the “levelized cost of energy” or rather the average cost of electricity generation of the lifetime of a facility, namely wind, solar and hydrogen. According to the study, the law will make the cost of renewable energy rapidly decline. The study does admit, however, to a range of “development challenges” such as interconnection delays, labor shortages, increased installation costs, and local laws limiting the construction of wind and solar as “not in my backyard” sentiments intensify that could get in the way of these cost savings being realized. IRA defenders often leave this point out. 

But when looking at the levelized cost of energy and the referenced savings, the same could be said for any technology that receives billions of taxpayer support and clear market preference. The IRA is not designed to create savings to American families or the broader taxpayer. This is about sending signals to Wall Street to invest in the president’s preferred energy technologies that are expensive and unreliable. This will not result in any real “savings” and will only exacerbate current energy problems.