Why the Inflation Reduction Act Falls Short on Fossil Fuels
Examining the Inflation Reduction Act’s limitations in tackling fossil fuel subsidies and greenhouse gas emissions across the United States.
The Inflation Reduction Act (IRA) was heralded as a monumental step forward in U.S. climate and energy policy. While the legislation includes notable investments in clean energy, electrification, and emission mitigation, it has drawn criticism for falling short in curtailing fossil fuel subsidies and confronting entrenched emissions sources. This article takes an in-depth look at oversight, continued incentives for fossil fuels, energy cost impacts, and the broader implications for climate action.
Core Issues Addressed by the Inflation Reduction Act
- Expansion of renewable energy investments
- Household and industrial energy cost impacts
- Enduring fossil fuel subsidies
- Unrealized climate ambitions
- Expert analyses and debates
Understanding the Inflation Reduction Act’s Intentions
The Inflation Reduction Act—enacted in August 2022—was presented as a law designed to accelerate the shift to clean energy and reduce U.S. greenhouse gas emissions. Substantial financial incentives aimed at supporting renewable projects, promoting electric vehicles, and enhancing energy efficiency underscored its climate ambitions. However, the law’s framing as both an economic and environmental bill meant that concessions were made, especially around fossil fuels.
Key Provisions in the Act
- Tax credits for solar, wind, battery storage, and carbon capture
- Consumer rebates for electrification and electric vehicle purchases
- Support for domestic manufacturing of clean energy technologies
- Extended incentives for certain fossil fuel projects, including carbon capture and sequestration (CCS)
Fossil Fuel Subsidies: A Persistent Challenge
Despite the forward-looking elements of the IRA, the Act failed to eliminate or meaningfully reduce longstanding subsidies to fossil fuel industries. In fact, recent legislative actions—including the “One Big Beautiful Bill”—have expanded fossil fuel support, allocating billions of dollars to oil, gas, and coal companies. Many subsidies, such as deductions for drilling expenses, remain embedded in U.S. tax code since the early 20th century.
Federal Fossil Fuel Subsidy Breakdown
| Subsidy Type | Estimated Annual Value | Description |
|---|---|---|
| Drilling Expense Deduction | $4 billion | Allows companies to write off exploration and drilling costs |
| Accelerated Depreciation | $2.3 billion | Speeds tax breaks for equipment and infrastructure |
| Percentage Depletion Allowance | $1.1 billion | Enables special deduction for mineral resource extraction |
| Other Subsidies | $3.4 billion | Various credits and regulatory benefits |
Altogether, existing and new subsidies may reach at least $34.8 billion annually, reinforcing the economic position of fossil fuel industries in the United States.
Energy Costs: Impact on Households and Industry
While the IRA aimed to reduce energy costs over time, changes to policy—especially those in recent budget reconciliation bills—are projected to increase average household energy expenditures by $78 to $192 per year by 2035. Major contributors include:
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- Higher spending on mobility fuels (motor gasoline, diesel, electricity for EV charging)
- Increased gasoline prices (1–3% rise due to greater consumption and fewer EVs on the road)
- Electricity bills up by 2–4%, due to higher household rates
Substantial regional disparities exist; the ten states most affected may see bills rise by $115–$314, or nearly two-thirds higher than the national average.
Industrial Energy Expenditures
- Projected increase by $7–11 billion per year for industrial sectors in 2035
- Half of this stems from greater electricity costs; a quarter to one-third from natural gas consumption and higher gas prices
- Industries face a 3–4% rise in energy-related spending over the baseline, influencing manufacturing and supply chain competitiveness
Clean Energy Transition: Opportunities and Limitations
The IRA introduced generous uncapped subsidies for clean energy that were intended to catalyze rapid decarbonization. Early governmental estimates placed the 10-year cost of these subsidies at around $370 billion, but subsequent independent analyses have raised projections to as high as $1.97 trillion for the first decade, and up to $4.67 trillion by 2050. The bulk of these costs arise from tax incentives for:
- Solar, wind, and battery storage
- Electric vehicle production and purchases
- Carbon capture and sequestration (CCS) technologies
- Renewable energy manufacturing and supply chains
While these subsidies support climate goals, the absence of direct fossil fuel industry phaseout measures curtails the Act’s effectiveness in driving down emissions from the most polluting sectors.
Carbon Capture, Usage, and Storage (CCUS): Double-Edged Sword
The IRA and related legislation expanded the 45Q tax credit for carbon capture technologies, aiming to lower industrial and power sector emissions. While CCUS can deliver climate benefits, it also enables fossil fuel producers to qualify for subsidies by capturing and reusing carbon for enhanced oil recovery (EOR), effectively extending the life of oil fields and perpetuating fossil production.
Potential Risks and Benefits
- Climate benefits: Can reduce emissions from heavy industry, cement, steel, and power generation if deployed properly
- Rebound effect: CCUS used for EOR may increase overall oil extraction, undermining climate targets
- Market share: U.S. positioned to increase EOR market share globally, as carbon pricing regimes reward lower-carbon barrels
- Project dependency: Effectiveness depends on regulatory oversight, project management, and genuine emissions reduction
Unmet Climate Ambitions
Climate advocates contend that the IRA’s incremental progress is insufficient given the urgency of the climate crisis. The law’s continued support for fossil fuel extraction, lack of mandate for phaseout, and reliance on market-based incentives risk locking in decades of emissions. Key criticisms include:
- Failure to end fossil fuel subsidies
- No binding targets for fossil fuel phaseout
- Reliance on voluntary mechanisms rather than regulatory enforcement
- Potential for greenwashing via fossil-linked CCUS projects
- Increased GHG emissions under certain scenarios, especially in regions or industries where fossil fuel consumption remains high
Climate Impact Table
| Policy Feature | Climate Effect | Expert Assessment |
|---|---|---|
| Clean Energy Tax Credits | Stimulates renewable deployment | Positive, but duration and scale uncertain |
| Fossil Subsidy Retention | Perpetuates emissions | Significantly undermines targets |
| CCUS Expansion | Mixed; depends on use (storage vs. EOR) | Potential for net-negative if mismanaged |
| Regional Variation | High-emitting regions affected more | Risks of widened disparities |
Expert Views: Debate and Divergence
Policymakers, economists, and climate experts remain divided. Some argue the IRA represents a historic investment and creates market signals for change. Others underscore the risk of uncapped liabilities, ongoing support for fossil fuels, and missed opportunities for regulatory change. As debates intensify, calls grow for reforms including:
- Capping total energy subsidies to minimize taxpayer exposure
- Repealing legacy fossil fuel benefits and redirecting funds to climate mitigation
- Strengthening regulations to ensure CCUS and clean energy do not inadvertently extend fossil fuel use
- Increasing transparency of federal energy spending and climate impacts
Frequently Asked Questions (FAQs)
Q: Did the Inflation Reduction Act eliminate fossil fuel subsidies?
A: No. The IRA did not directly eliminate major federal fossil fuel subsidies, and recent legislation has maintained or increased these incentives.
Q: How will the IRA affect my household energy bill?
A: Projected impacts vary by region, but on average, household energy costs will rise by $78–$192 annually by 2035, with some states experiencing much higher increases.
Q: Are clean energy subsidies effective?
A: Clean energy subsidies are projected to accelerate renewable deployment, but the program’s uncapped nature risks creating high taxpayer liability and uneven impact if not carefully managed.
Q: What is carbon capture and why is it controversial?
A: Carbon capture involves trapping industrial carbon emissions and storing or repurposing them. It’s controversial because it may extend the lifespan of fossil fuel projects through enhanced oil recovery and risks greenwashing if not strictly regulated.
Q: Does the law set binding emissions targets?
A: The IRA provides incentives but not legally binding emissions reductions or fossil fuel phaseout mandates. U.S. climate progress depends on future policy actions and implementation rigor.
Conclusion: Charting a Path Forward
The Inflation Reduction Act marks a pivotal moment in U.S. climate policy but leaves serious gaps in fossil fuel oversight, subsidy reform, and binding climate targets. Greater transparency, robust regulatory frameworks, and phased elimination of fossil incentives are essential for the U.S. to meet its climate commitments and support a truly sustainable energy transition.
References
- https://e360.yale.edu/digest/republican-spending-bill-fossil-fuel-subsidies
- https://rhg.com/research/assessing-the-impacts-of-the-final-one-big-beautiful-bill/
- https://www.cato.org/policy-analysis/budgetary-cost-inflation-reduction-acts-energy-subsidies
- https://www.energypolicy.columbia.edu/assessing-the-energy-impacts-of-the-one-big-beautiful-bill-act/
- https://www.epa.gov/green-power-markets/summary-inflation-reduction-act-provisions-related-renewable-energy
- https://www.eia.gov/outlooks/aeo/
- https://www.americanprogress.org/article/how-project-2025-threatens-the-inflation-reduction-acts-thriving-clean-energy-economy/
- https://influencemap.org/briefing/Fossil-Fuel-Bulletin-March-2025
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