New OMB Analysis: The Inflation Reduction Act Will Significantly Cut the Social Costs of Climate Change
By Candace Vahlsing, Associate Director for Climate, Energy, Environment, and Science, Office of Management and Budget
The Inflation Reduction Act represents the most aggressive action to combat the climate crisis and improve American energy security in our nation’s history. It will position us to reach President Biden’s ambitious climate goals, which will save the average American family hundreds of dollars a year in energy costs. The law will provide direct consumer rebates and tax credits to purchase more efficient appliances, provide up to $7,500 in tax credits for Americans to purchase electric vehicles, and create millions of good-paying jobs making and deploying clean energy in America. Because of the Inflation Reduction Act’s investments, America is on track to decrease greenhouse gas emissions by about 40 percent below 2005 levels in 2030—positioning America to meet President Biden’s climate goals of cutting greenhouse gases at least in half in 2030 and reaching net zero by no later than 2050. And it will dramatically mitigate what policymakers call the “social costs” of climate change—through better outcomes like:
- Avoiding negative health impacts, including things like premature death;
- Reducing expensive property damage from sea level rise and natural disasters; and
- Reducing costs related to increasing temperatures.
Today, for the first time, the Office of Management and Budget (OMB) is releasing an analysis that quantifies how the Inflation Reduction Act will help avoid the social and economic damages of climate change. The new analysis finds that—in addition to dramatically reducing energy prices for the American people and cutting the deficit—the law could cut the social costs of climate change by up to $1.9 trillion by 2050.
In addition to these enormous benefits to working families and American society as a whole, the analysis underscores that the Inflation Reduction Act will also help improve our country’s long-term fiscal health. Earlier this year, OMB produced a report which found that climate change could lead to an annual Federal revenue loss at the end of the century of 7.1 percent, which in today’s dollars would equal $2 trillion per year. The analysis also found that the Federal Government could spend between an additional $25 billion to $128 billion annually on just six types of Federal expenditures: coastal disaster relief, flood insurance, crop insurance, healthcare insurance, wildland fire suppression, and flooding at Federal facilities.
The bottom line: over the long-term, the Inflation Reduction Act will help avoid billions of dollars that the Federal Government might otherwise expect to transfer to households and businesses for programs like crop insurance, health insurance, and fire suppression due to climate change. And the Inflation Reduction Act will help ease the burden that climate change imposes on the American public, strengthen our economy, and reduce future financial risks to the Federal Government and to taxpayers.
You can read the complete analysis and methodology here.