Union of Concerned Scientists

Will Congress Extend the EV Tax Credit? A New Bipartisan Bill Gives me Hope

Photo: John Brighenti/Flickr

Electric vehicles (EVs) are our best choice for significantly reducing emissions from cars and light trucks.  Here at UCS, we spend a lot of time thinking about EVs, how they work, what they do for the environment, how to get more consumers to think about buying one, how to make sure the benefits of electrification are widespread and equitable, and how to best incentivize these vehicles for consumers.

Numerous polls and studies show that reducing the upfront cost of EVs is key to accelerating adoption.  The purchase price of EVs are currently higher than their conventional gasoline-powered counterparts, so the federal $7,500 tax credit for plug-in electric EVs helps make them cost competitive and is critical for deployment.  The credit is structured differently than most other tax credits– the full credit is available until an auto company hits 200,000 EV sales – after a manufacturer exceeds that number of sales, there is a year-long phase down period where buyers receive a partial tax credit.

Why does this matter?

Two U.S. manufacturers have hit the 200,000 sales mark and are currently in the phase down – Tesla and General Motors.  Nissan will likely be the next manufacturer to hit the cap.  As consumers are shopping for a new EV, they will find that they will not be able to take the tax credit for vehicles made by these manufacturers, which creates a disincentive to buy EVs from these companies.  With about 40 EV models on the market (compared to nearly 300 models for conventional vehicles), the already restricted consumer choice on EVs shrinks even more.  Further, many of these EVs are only available in select markets, so depending on where you live, you may have far fewer EV models to choose from. This also penalizes the companies that have been leading the way on electrification as they are now competing with companies that have been slower to market and whose vehicles are still eligible for the tax credit.

It’s not that this is a bad structure, but the biggest problem with the current tax credit is that 200,000 vehicles isn’t considered scale in the auto industry.  For example, in 2018 over 240,000 Jeep Cherokees, 325,000 Honda Civics, and 909,000 Ford F-series trucks were sold.  These vehicles are all being produced at scale, but not a single EV model has had sales anywhere close to these numbers over their many years on the market.

As battery costs decline and manufacturing scale increases, these vehicles will become cost-competitive with conventional vehicles – both our analysis and new analysis from ICCT show that we can expect to see price parity in the mid-2020’s.  We strongly support expanding or modifying the tax credit for a defined period before EVs are cost-competitive with conventional vehicles.  There are a number of ideas on how to do this; some change the credit to be a more conventional tax credit and allow for it to be used for a set number of years.  Others increase the number of vehicles (the “manufacturer cap”) that are eligible for the tax credit.  We are open to evaluating any of these solutions.

We are nearing a tipping point in the next decade where electrification will be mainstream — costs for batteries are coming down, and manufacturers are nearing deployment of EVs in every class of vehicle. But it will take bipartisan support and investment to make that vision a reality, if the US is to lead the world towards a more sustainable transportation future.

What’s new this week?

Last night, the first bipartisan and bicameral piece of legislation that would increase the tax credit was unveiled.  It has the support of 60 organizations, including the auto companies (all of them – this is no small feat), utilities, auto suppliers, environmental groups, health groups, business groups, and security groups.  In other words, this is legislation that has widespread support and could potentially become law.

In the Senate, Senators Debbie Stabenow (D-MI), Lamar Alexander (R-TN), Gary Peters (D-MI), and Susan Collins (R-ME) are the primary architects of the Driving America Forward Act.  Representative Dan Kildee (D-MI-5) is the lead sponsor in the House of Representatives.  This proposal would increase the per manufacturer cap to 600,000 and reduce the tax credit value for the additional 400,000 units to $7,000 per vehicle (it’s currently a maximum $7,500 per vehicle).  The bill also extends the tax credit for hydrogen fuel cell electric vehicles for 10 years, which will incentivize the development and deployment of additional low carbon, zero tailpipe emissions options, which UCS also supports.

What will the bill really do?

Some relatively simple math shows the benefits of EVs. The average EV driving on electricity in the US will generate 3.3 tons FEWER CO2e (CO2 equivalent) emissions per year than an average gasoline-powered car (which right now gets about 30 mpg).  If I could wave a magic wand and replace 400,000 conventional vehicles with EVs tomorrow, the reduction would be 2 million metric tons of CO2e emissions per year, roughly the same emissions as from the electricity use of almost 350,000 homes in  a year.

These climate benefits are real and are only going to get better as the grid gets cleaner.  My colleagues have been looking at the emissions impacts of driving an EV in different parts of the country for years now and we have already seen a dramatic shift in the several years since when we first started this work.  In 2009, we found that 45 percent of people lived in areas where an EV would produce the same tailpipe global warming emissions as a conventional vehicle that gets 50 mpg.  By our more recent analysis in 2018, that number was up to 75 percent (the toggle function on the map in this blog is really fun).  In large parts of the country, EVs emit much less than even the most efficient conventional vehicle.  That’s a significant change over a relatively short time period.  Unlike gasoline, electricity is a transportation fuel that can get (and has gotten!) significantly cleaner over time – as the grid gets cleaner, the emissions from EVs charged on that grid automatically go down.

In addition to the climate benefits, this bill would also result in lower oil use – to the tune of about 480 gallons per year per car.  In my magic wand scenario above, that would be nearly 200 million gallons of gasoline that are not used.  That’s a lot of oil.  Speaking of oil – you know who isn’t going to like this bill?  The Koch brothers and the oil industry.  We have been keeping an eye on their lobbying activities around the EV tax credit – I’m sure it won’t be terribly surprising to learn that they are actively trying to abolish it.   This means that the oil companies think that EVs pose a real threat to their business.  To me, that means we’re on the right path, but we can’t afford to deviate now.  We must keep moving forward, and that means increasing EV sales and making sure that charging infrastructure is available so we can dramatically reduce emissions from transportation.

EVs may be a threat to the oil industry, but they are critical to the auto industry

US leadership in a critical industry is also riding on our ability to deploy EVs domestically.  Globally, there is really no question that we are moving towards electrification.  The International Council on Clean Transportation has written several reports on the global EV market and what other countries are doing to incentivize EV purchases – not surprisingly, China is setting itself up to eat our lunch.

In 2018, 64 percent of the EVs sold in the US were made domestically.  GM, Tesla and Nissan EVs have been rolling off assembly lines in MI, CA, and TN, for example. That’s a pretty good news story.  But if we, as a country, do not continue to invest in electrification, we are not going to be able to keep posting these numbers.  We are going to wind up importing more EVs, and maybe more importantly, the intellectual capacity on innovation and leadership in the advanced automotive industry is going to shift elsewhere.  As ICCT put it “Economies like Japan, Germany, and the United States, among others where there is major automobile manufacturing, have the most to lose if they do not lead in the transition to electric vehicles.  China, on the other hand, is now the leading automobile market and has the most to gain from staking out a leadership position in the shift to electric.”  If we don’t stay at the table, we can’t win.

It would be great for more Senators to support the bipartisan bill to extend the EV tax credit – you can ask your Senators to co-sponsor the bill by taking this action.

Photo: John Brighenti/Flickr

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