The Economic Impact of Clean Energy Tax Incentives: A Key Debate in Congress

Authored by EDF Economists

This blog was authored by EDF economists Aurora Barone, Luis Fernandez Intriago, and Jeremy Proville.

As Congress reconvenes to discuss the future of clean energy tax incentives, it’s crucial to frame this debate through the lens of solid economic analysis. Clean energy tax incentives are not merely a component of climate policy; they are strategic investments that significantly influence the United States’ economic landscape, energy security, and global competitiveness. As discussions unfold regarding major modifications to these incentives, focusing on economic fundamentals uncovers the substantial risks tied to their potential repeal.

The Stakes are High

The discussions around clean energy tax incentives coincide with a critical moment for American economic competitiveness. With U.S. electricity demand projected to surge by 54% by 2035 and 135% by 2050, driven largely by emerging data centers, new manufacturing facilities, and the electrification of various sectors, the methods to power this growing economy become pivotal. Early data suggests that clean energy incentives have already stimulated the creation of over 400,000 new jobs across multiple sectors. Repealing these incentives could undermine American livelihoods, jeopardizing energy affordability, and impairing the country’s production capabilities.

Employment and Investment Impacts: The Numbers

A myriad of economic analyses consistently illustrates the potential damage that could ensue from repealing clean energy tax incentives.

• Aurora Energy Research predicts a loss of 97,000 clean energy jobs across 31 states, with about 103,000 fewer clean energy jobs, partially mitigated by only 6,000 new fossil fuel jobs.
• The International Council on Clean Transportation highlights that approximately 130,000 auto manufacturing jobs could be jeopardized, with an additional 310,000 indirect jobs at risk by 2030.
• Energy Innovation estimates nearly 790,000 jobs lost by 2030, with over 700,000 still missing by 2035.
• The Brattle Group anticipates a cumulative loss of 3.8 million job-years through 2035, averaging 345,000 jobs annually.

These figures collectively underscore the severe economic ramifications that would result from the discontinuation of clean energy incentives.

Clean Energy Tax Incentives as Job Creation Engines

What makes clean energy incentives unique is their broader approach to job creation, which significantly surpasses job growth produced by narrower policies addressing single industries. The incentives send powerful economic signals that stimulate job creation across multiple sectors:

• Investment and Production Tax Credits: These encourage domestic production, fostering long-term operations jobs within renewable energy and clean transportation sectors.
• Clean Energy Manufacturing Credits: These support the domestic manufacturing of essential components like batteries, electric vehicles (EVs), and solar panels, thus enhancing competitiveness.
• Direct Pay Provisions: Allow tax-exempt entities such as schools and municipalities to receive immediate cash payments from the IRS, granting them the flexibility needed for independent project financing.
• Domestic Content Bonuses: These boost U.S. manufacturing for clean energy production materials, significantly impacting local economies.
• Energy Community Incentives: These target job creation in regions transitioning from fossil-fuel-based economies.

A noteworthy aspect is the geographic distribution of these incentives’ benefits, with more than 60% of clean energy projects located in Republican congressional districts. The broad-reaching nature of these incentives chiefly contributes to construction employment across various regions, including the South, Midwest, Southwest, and Mountain West.

Public Health and Economic Savings

Often overlooked in economic discussions surrounding clean energy incentives are the substantial public health benefits derived from reduced air pollution. The Treasury Department anticipates health benefits near $20-49 billion annually by 2030 as a result of these incentives, effectively offsetting much of the program’s fiscal expenditures. This includes not only avoided healthcare costs but also enhanced productivity and reduced mortality risks.

Energy Security and Strategic Competition

By 2024, nearly half of U.S. electricity is projected to come from low-carbon sources. This diversification not only bolsters American energy security but also enhances the nation’s strategic advantages. Clean energy generation plays a dual role, replacing retiring coal capacity while meeting increasing electricity demands, especially during extreme weather events that currently challenge the electric grid.

Should clean energy tax incentives be repealed, America’s reliance on natural gas would deepen, revealing several vulnerabilities:

• Price Volatility: The unpredictability of natural gas prices during extreme conditions can severely impact consumer costs and economic stability.
• Geopolitical Exposure: A single-fuel reliance renders the country more susceptible to disruptions within global energy markets.
• Supply Constraints: Developing the necessary natural gas infrastructure requires extensive lead time, leading to potential bottlenecks.
• Strategic Disadvantage: While nations like China and India aggressively develop their clean energy sectors, the repeal of U.S. incentives would risk surrendering America’s competitive stance.

Understanding Fiscal vs. Economic Costs

Critics frequently hone in on fiscal costs, constructing an incomplete economic narrative. The Treasury Department clarifies that fiscal costs—monetary transfers from the government—should not overshadow true economic costs, which represent net losses to the economy. Several forecasts estimate the fiscal costs associated with clean energy tax incentives:

• Credit Suisse: More than $800 billion
• Brookings Institution: Approximately $780 billion through 2031
• Goldman Sachs: Estimated at $1.2 trillion
• University of Pennsylvania: Just over $1 trillion (2023-2032)

However, it is essential to emphasize that “fiscal costs are the wrong costs to consider,” an assertion made by the Treasury. Comprehensive economic analysis must capture the total value generated, including jobs, consumer savings, health improvements, and environmental benefits.

The Economic Case for Clean Energy Incentives

The clean energy incentives currently in place have demonstrated effectiveness and garnered bipartisan support, illustrating their importance for American prosperity. Any potential repeal of these incentives would likely introduce volatility detrimental to job security, economic growth, and global competitiveness. The evidence strongly favors preserving these incentives, solidifying their significant role in driving America toward a more sustainable and prosperous future.