States that lack clean energy leadership and policies such as renewable energy portfolio standards are expected to see the highest electricity hikes resulting from the Inflation Reduction Act’s (IRA) early removal, modeling from the Resources for the Future found.
Resources for the Future explored the potential introduction of a price on carbon dioxide (CO2) emissions in the electricity sector at the state level via a cap or limit on power sector emissions sources, and coupling that price with a policy to direct program revenues to reduce residential electricity rates. They then examined implementing this policy in eight states that are clean energy leaders and have previously pursued clean energy policies such as renewable portfolio standards, but do not currently have carbon pricing in place. These states included Arizona, Colorado, New Mexico, Illinois, Michigan, Minnesota, Wisconsin and North Carolina.
In the eight states they modeled, Resources for the Future found a 3% reduction in electricity prices in 2030 if the IRA were fully in place. Comparatively, other states with a heavier fossil fuel portfolio would have realized overall greater reductions in electricity prices had the IRA been fully implemented instead of reversed. Previous research from 2024 found the IRA reduced electricity prices by 6% nationwide in 2030.
In the absence of the IRA and without using any of the revenue for rebates, or investments in renewable energy or energy efficiency, Resources for the Future found electricity prices in all states to increase by an average of 9%.
Resources for the Future found that returning the revenue collected across the sector to residential ratepayers to address electricity affordability concerns for households would reduce electricity prices by an average of 6%.
“This reduction equates to twice the savings that would have been realized on average by full implementation of the IRA in this set of states,” Resources of the Future said.
However, Resources for the Future said while using carbon proceeds to directly reduce electricity rates clearly addressees household affordability concerns, it might not be the best option.
Instead, Resources for the Future said states could consider returning a portion of the revenue to consumers as a climate credit, perhaps even targeting low-income customers, while using revenues left over to reinvest in clean energy and resilience.
If the IRA had been fully implemented, the modeling estimated that the average electricity bill nationwide would have been reduced by $101 in 2030. However, for the eight clean energy leadership states, the household savings from the IRA were estimated to be an average $55.
Introducing a carbon price without reinvesting any of the revenue into new investments that decrease energy demand, or returning the proceeds to consumers, would increase 2030 electricity bills in the eight states by $145.
Notably, the authors said that even with the IRA, returning the carbon revenues to reduce residential electricity prices would result in a net reduction of $92 on electricity bills, which is greater than what anticipated from the full implementation of the IRA.
The authors suggested using a portfolio approach to pursue remedies that accelerate the transition to a clean energy economy should they implement a carbon tax.
“A clean energy pathway results in other economic changes, including an employment profile that differs from fossil fuel dependence,” the authors said.
In addition, electricity prices from clean energy also face less uncertainty from exposure to volatile fossil gas prices.
(Also read: Clean energy jobs grew three times faster than overall U.S. workforce, but federal obstruction puts growth at risk)
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