By David Lawder
BOSTON (Reuters) -U.S. Treasury Secretary Janet Yellen said on Wednesday that Inflation Reduction Act tax credits will cost more than initially estimated, citing strong demand for clean energy investments.
Yellen said during a visit to Boston to promote the green energy tax credits that the President Joe Biden's administration will come out with a formal assessment of costs, but declined to name a figure.
Some private forecasters including Goldman Sachs (NYSE:GS) have estimated that the program initially estimated at $369 billion over 10 years would ultimately cost as much as $1 trillion. The White House budget office last July estimated that the clean energy subsidies over 10 years would increase by $120 billion.
"I don't have the number for you at the moment, but I wouldn't disagree with the cost has risen," Yellen told reporters at Roxbury Community College. "But importantly, what that reflects is the effectiveness, the tremendous response rate that we're seeing from the private sector from cities and states to these incentives."
Congressional negotiators have been sparring over cutting federal spending with government shutdown deadlines looming as soon as Jan. 19. Senate Republican leader Mitch McConnell has said another short-term stop-gap funding measure will likely be needed to keep some agencies open.
ENERGY COST SAVINGS
Yellen said in remarks after touring a smart building lab at Roxbury Community College that the IRA tax credits will help save people money on utilities and shield them from future price volatility in fossil fuel energy.
The tax credits, which help defray costs of household energy upgrades, are among administration efforts to lower the cost of living for Americans.
"But despite how far we’ve come, we know significant work remains to be done. For too many families, prices for goods that matter - such as groceries, rents, and prescription drugs - are high," Yellen said.
Persistent inflation has hindered Biden's efforts to win credit from voters on his handling of the economy, but that is now easing. Yellen has said that as wage increases outpace prices, Americans will start to feel more financially confident.
She said Massachusetts households using natural gas for heat will spend $900 this winter, while those using heating oil will spend over $2,000 -- a bill that can be cut in half by switching to an electric heat pump, Yellen added.
But such conversions, particularly in Massachusetts where oil heat is prevalent in older homes, can costs tens of thousands of dollars.
The IRA, passed in August 2022, allows families to receive a $2,000 tax credit for installing an electric heat pump to replace oil or gas furnaces, and they can receive a tax credit of up to $1,200 for installing energy efficient windows. The legislation also allows for tax credits of up to $7,500 to offset the cost of electric vehicles.
"You can also discount by up to 30 percent the cost of putting solar panels on your roof or batteries in your garage to store the energy those panels produce," Yellen said.