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A new study shows that electric vehicle tax credits under the Inflation Reduction Act reduced pollution and boosted U.S. automakers, but largely benefited buyers who would have purchased EVs without subsidies.

New research by a team of economists shows that electric vehicle tax credits under the Inflation Reduction Act (IRA) have decreased climate pollution and boosted American car manufacturers, but at a price. Most car buyers benefiting from the subsidy would have purchased an electric vehicle anyway, raising questions about the taxpayer dollars spent pursuing the cleaner energy policy.

The study, published Oct. 7 as a working paper by the National Bureau of Economic Research, offers the most comprehensive look yet at the economic effects of the electric vehicle (EV) subsidies allowed for in the Inflation Reduction Act of 2022. Overall, the news is good: The EVs purchased after the law took effect have increased American automaker profits, put money into the pockets of consumers who receive the maximum $7,500 tax credit, and benefited the environment.

In economic terms, the researchers conclude that the new EV tax subsidies have reaped $1.87 in U.S. benefits for every $1 of government spending when accounting for subsidies that existed prior to the IRA. Under a scenario with no electric vehicle subsidies, however, the IRA policy generated only $1.02 in U.S. benefits per dollar of government spending.

From a tax policy perspective, the payoff has come at a price.

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