Inflation Reduction Act

J. Bistline, G. Blanford, Maxwell Brown, D. Burtraw, Maya Domeshek, J. Farbes, Allen A. Fawcett, A. Hamilton, J. Jenkins, Ryan A. Jones, Ben King, H. Kolus, John Larsen, A. Levin, Megan Mahajan, Cara Marcy, Erin N. Mayfield, James R. McFarland, H. Mcjeon, Robbie Orvis, Neha S. Patankar, K. Rennert, Christopher Roney, Nicholas Roy, Greg Schivley, D. Steinberg, N. Victor, Shelley Wenzel, J. Weyant, R. Wiser, Mei Yuan, A. Zhao

Description Economy-wide emissions drop 43 to 48% below 2005 levels by 2035 with accelerated clean energy deployment If goals set under the Paris Agreement are met, the world may hold warming well below 2°C (1); however, parties are not on track to deliver these commitments (2), increasing focus on policy implementation to close the gap between ambition and action. Recently, the US government passed its most prominent piece of climate legislation to date—the Inflation Reduction Act of 2022 (IRA)—designed to invest in a wide range of programs that, among other provisions, incentivize clean energy and carbon management, encourage electrification and efficiency measures, reduce methane emissions, promote domestic supply chains, and address environmental justice concerns (3). IRA’s scope and complexity make modeling important to understand impacts on emissions and energy systems. We leverage results from nine independent, state-of-the-art models to examine potential implications of key IRA provisions, showing economy-wide emissions reductions between 43 and 48% below 2005 levels by 2035.

J. Bistline, Neil R. Mehrotra, Catherine Wolfram

ABSTRACT:The Inflation Reduction Act (IRA) represents the largest US federal response to climate change to date. We highlight the key climate provisions and assess the act's potential economic impacts. Substantially higher investments in clean energy and electric vehicles imply that fiscal costs may be larger than projected. However, even at the high end, IRA provisions remain cost-effective. The IRA has large impacts on power sector investments and electricity prices, lowering retail electricity rates and resulting in negative prices in some wholesale markets. We find small quantitative macroeconomic effects, including a small decline in headline inflation, but macroeconomic conditions—particularly higher interest rates and materials costs—may have substantial negative effects on clean energy investment. We show that the subsidy approach in the IRA has expansionary supply-side effects relative to a carbon tax but, in a representative-agent dynamic model, is preferable to a carbon tax only in the presence of a strong learning-by-doing externality. We also discuss the economics of the industrial policy aspects of the act as well as the distributional impacts and the possible incidence of the different tax credits in the IRA.

Matthew Vogel, Pragya Kakani, Amitabh Chandra, Rena M. Conti

Christopher L Cai, Anushka Bhaskar, Aaron S Kesselheim, Benjamin N. Rome

Importance The Inflation Reduction Act (IRA) included several changes to Medicare Part D prescription drug coverage effective in 2024 and 2025, including a $2000 annual out-of-pocket limit and the shifting of spending from the government to plan sponsors. Federal policies prevented premium increases in 2025, but Part D plans may have responded by increasing deductibles or medication cost sharing. Objective To measure annual changes in Medicare Part D premiums, deductibles, and cost sharing from 2019 to 2025. Design, Setting, and Participants This serial cross-sectional study included 2019 to 2025 data for enrollees in Medicare Part D stand-alone and Medicare Advantage plans. Main Outcomes and Measures The primary outcomes were mean monthly premiums and annual deductibles, as well as the proportion of enrollees with coinsurance (vs co-payments) for medications in different formulary tiers. To illustrate changes, mean monthly out-of-pocket costs were estimated for 9 high-spending, nonspecialty, brand-name medications. Results were weighted by plan enrollment and stratified by stand-alone vs Medicare Advantage plans. Results For Medicare Advantage plans, mean deductibles decreased from $153 in 2019 to $66 in 2024, then increased to $228 in 2025. The proportion of Medicare Advantage beneficiaries with coinsurance for preferred brand-name drugs ranged from 0.8% to 2.5% from 2019 to 2024 and increased to 27.7% in 2025. For 9 high-spending, nonspecialty, brand-name drugs, mean monthly out-of-pocket costs ranged from $46 to $55 from 2019 to 2024 and increased to $73 in 2025. In stand-alone plans, changes were observed before and after implementation of the IRA: mean deductibles increased steadily from $295 in 2019 to $490 in 2025, and the proportion of beneficiaries with coinsurance for preferred brand-name drugs increased from 21.9% to 84.0%. Cost sharing for the 9 drugs increased steadily from $62 in 2019 to $108 in 2025 in stand-alone plans. Premiums for both plan types decreased throughout the study period. Conclusions and Relevance This cross-sectional study demonstrates that as the IRA's changes to Part D were implemented in 2024 to 2025, there were concurrent changes in plan design that may increase cost sharing, particularly for beneficiaries who do not spend more than the $2000 annual out-of-pocket limit and for those in Medicare Advantage plans. Additional policies may be needed to address cost sharing and ensure the affordability of essential medications covered by Medicare Part D.

Linghong Zhang, Wen Shi

The Inflation Reduction Act (IRA) passed by the United States in 2022 affected the global layout of electric vehicle (EV) supply chains. This paper explores the impacts of the IRA on the decisions of overseas battery suppliers and domestic EV manufacturers in the US. The main findings are that (1) the suppliers’ and manufacturers’ optimal decisions depend on the local subsidy, tariff, and battery R&D costs: tariffs (subsidies) reduce (increase) the battery R&D level for overseas (local) suppliers, EV prices, and supply chain members’ profits; (2) subsidies and tariffs are key factors in distinguishing manufacturers from overseas procurement and local procurement when R&D cost coefficients are determined; cost coefficients and service fees are the key factors for manufacturers to choose local procurement or R&D cooperation strategies; and (3) when local supply chains compete with overseas supply chains, subsidies will give the local supply chains a sales advantage while giving overseas supply chains a price advantage, and when local supply chains compete with cooperative supply chains, subsidies will give local supply chains a price disadvantage and a sales disadvantage.