The Cut Inflation Act is expected to be a boon for zero-emission energy and fuels, including vehicle electrification. It creates or expands tax credits for wind, solar, nuclear, hydrogen and electric vehicles, including the $40,000 tax credits that can be leveraged for school buses.

It encourages manufacturing of clean-energy components and vehicles in America with jobs that pay prevailing wages. And tax credits provide additional incentives for clean energy projects and generation in communities once burdened by fossil fuel extraction, processing or storage.

A report by Senate Democrats describes it as the biggest climate-related investment in US history, expected to cut greenhouse gas emissions by 40% by 2030.

But will the partisan law, signed on August 16, really reduce inflation?

The experts are pessimistic.

Penn Wharton’s economic model estimated that “the impact on inflation is statistically indistinguishable from zero”, reducing inflation by 0.1% over five years and having no impact after 2028.

The Congressional Budget Office made similar projections, predicting that the law could reduce inflation by 0.1% or even increase it by the same amount in coming years.

Quoted in the journal The conversation, University of Michigan economist Nirupama Rao said the impact on inflation is likely to be “not large.” However, “several measures in the law, such as reducing the deficit, lowering drug prices, and reducing the United States’ vulnerability to energy price spikes, should all help reduce the risk somewhat. inflation,” Rao said.

The Cut Inflation Act is expected to invest $437 billion over a decade, generate $737 billion in new revenue and support more than $300 billion in deficit reduction, according to estimates by the Joint Committee on Taxation and the Congressional Budget Office.

The investments will be funded largely by taxes, including the IRS’ enhanced enforcement of collection of taxes owed, and a new minimum corporate tax of 15% for companies earning more than $1 billion. per year. However, the Joint Committee on Taxation estimated that only 150 companies would be subject to the new tax, and private equity firms were exempted after being included in earlier versions of the bill.

The Congressional Budget Office explained that “factors that increase aggregate demand drive inflation up and those that decrease aggregate demand drive inflation down.”

Extending health care subsidies under the law could mean that fewer people have an incentive to work, which would reduce the production of goods and therefore increase inflation, as demand relative to production would increase, a said the office.

Public purchases or purchases incentivized by law would also theoretically increase demand and therefore inflation. According to this reasoning, purchases of new electric buses and other vehicles could theoretically contribute to more inflation.

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In addition to $1 billion that state and local governments and transportation contractors can tap into to purchase clean medium- and heavy-duty vehicles, the law promises $3 billion to equip the U.S. Postal Service with zero-emission vehicles and $3 billion to reduce emissions at ports. .

Even if the law does not reduce inflation significantly, people should be relieved of soaring costs through provisions that reduce energy and fuel prices and help people benefit from clean energy. and energy efficiency, reducing their energy demand. In addition to incentives for clean vehicles, the law provides subsidies to help households afford rooftop solar panels, heat pumps and efficient appliances.

Investments in clean energy and clean vehicles are targeted in particular to low-income and environmentally friendly communities. But environmental justice advocates have also criticized the bill for supporting oil and gas leasing and pipeline construction, in the name of energy security, and also encouraging carbon capture and storage, a technology that helps fossil fuel power plants extend their lifespan.