1) OMB blog -- The Inflation Reduction Act Will Significantly Cut the Social Costs of Climate Change
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. . . .
2) OMB ANALYSIS: THE SOCIAL BENEFITS OF THE INFLATION REDUCTION ACT’S GREENHOUSE GAS EMISSION REDUCTIONS
. . . The Inflation Reduction Act of 2022 represents the most aggressive action to combat the climate crisis and improve American energy security in our nation’s history, lowering energy costs by hundreds of dollars per year for families through rebates and tax credits for efficient appliances and home upgrades, tax credits for rooftop solar systems, and tax credits for electric vehicles. It also invests in technologies like solar, wind, and clean hydrogen, with provisions that encourage domestic sourcing of materials. The law is projected to yield significant reductions to GHG emissions, with independent and official government projections agreeing it will reduce about one billion metric tons of annual emissions in 2030, with total annual emissions reaching about a 40 percent drop below 2005 levels in the year 2030.
This analysis is OMB’s first published estimate of avoided climate-related social costs resulting from a piece of legislation. It estimates the social impact that the Inflation Reduction Act would have from reducing GHG emissions by applying the interim social cost of greenhouse gases (SC-GHGs) to Inflation Reduction Act emission reduction models. It aims to help inform the potential impacts of the law and should be used in tandem with other analyses, such as scoring from the Congressional Budget Office.
. . . To estimate GHG impacts through 2050, OMB’s analysis assumes 2030 annual reductions would continue at the same rate through 2050, which OMB believes is a conservative assumption that is consistent with its methodological approaches in other contexts. Also, Princeton University’s Rapid Energy Policy Evaluation and Analysis Toolkit Inflation Reduction Act projections produce a single set of GHG reduction estimates by year, whereas Rhodium Group and Energy Innovation estimates project a high and low range of GHG reduction estimates. To cover the widest range possible of impacts, this analysis highlights those potential impacts (and monetizes them using the SC-GHG) by using the highest and lowest emissions scenarios of the three models.
This analysis uses unrounded interim SC-GHG annual values from 2023 to 2050, discounted to present 2022 values (and in 2020$) using a 2.5% discount rate, then applies those values to the GHG reduction estimates from the three models. For ease of visualization, rounded values are presented in Table 1, along with the results of the application.
Results of the OMB analysis found that cumulative climate-related benefits from the Inflation Reduction Act will range between $0.7 and $1.9 trillion through 2050. These social benefits of the Inflation Reduction Act could reflect the mitigation of a number of harmful climate impacts reflected in the SC-GHG, including:
• 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.
As noted, the interim social cost of carbon estimates are currently significantly underestimated because they do not account for many important climate damage categories, such as ocean acidification, and because of such omitted damages and other limitations and assumptions, these values are likely significant underestimates of the full public benefits of reducing greenhouse gas emissions. These results also do not capture benefits that passing the Inflation Reduction Act will have on other sectors of the economy outside of the impacts that the bill will have on GHG emissions.
Modeling of the Inflation Reduction Act impacts also focus on domestic GHG emissions reductions, where the Inflation Reduction Act will also likely have significant impacts on international GHG emissions. This focus on domestic emissions also suggests the quantifies benefits presented in this analysis are significant underestimates.
The Inflation Reduction Act will not only help tackle the climate crisis, but also very likely improve the long-term fiscal health of the Federal ledger. As noted, OMB assessments released with the FY 2023 President’s Budget found that climate change could lead to an annual revenue loss of $2 trillion in today’s dollars and $128 billion in increased annual Federal expenditures caused by increases in floods, drought, extreme heat, wildfires, and hurricanes.
In the long-term, the Inflation Reduction Act will help avoid significant expenditures that the Federal government might otherwise expect to spend on programs like crop insurance, health insurance, and fire suppression due to climate change. The Inflation Reduction Act will help ease the burden that climate change has on the American public, strengthen our economy and in so doing will also reduce the future financial risks from climate change for the Federal Government and for taxpayers.