Tax Credits for Affordable Electric Vehicles Gain Speed, But Legislation Must Avoid Stop Signs
As Congress begins to turn toward tax policies to help clean energy manufacturing, electric vehicle tax credits aimed directly at more affordable vehicles are gaining speed, just as a previous Forbes column and a Progressive Policy Institute (PPI) white paper urged several months ago.
The question now is will EV advocates in Congress, the U.S. auto industry and labor unions get the message and reform tax incentives to benefit middle-income Americans. Such revised tax credits focused on more affordable EVs will increase the chances new incentives become law, and will better allow the U.S. to reap the remarkable economic, health, manufacturing and environmental benefits of EVs. Yet as of now, new EV tax credits have been left entirely out of a so-called “tax extenders” outline circulating among House Ways and Means Committee members.
But a series of new developments are demonstrating that tax credits focused on affordable vehicles are gaining momentum.
Canada announced a new $5,000 EV tax credit but only for EVs priced under $45,000; not surprisingly, in response Tesla, which otherwise would not have qualified for the new credit, lowered the price to $44,999 of its base Model 3 offering in Canada to make it eligible.
Fiat Chrysler and Renault announced a merger plan to form the world’s 3rd largest automaker, and though the deal fell through due to demands from the Renault shareholding French government, the plan is still widely viewed within the industry as fueled by an opportunity to quickly make Chrysler one of the world’s largest EV producers and capture the huge new EV market, set to grow from fewer than 2 million EVs produced last year to more than 30 million a year around the world by 2030.
Major President candidates like Joe Biden proposed expanded EV tax credits, while candidate Gov. Jay Inslee’s electric vehicle proposal contained several major elements of PPI’s “Winning the Global Race for Electric Cars” white paper including new EV tax credits focused on more affordable models; a “cash for clunkers” tax credit for the trade-in of oil-burning vehicles and purchase of a new EV; and a requirement that all new federal government vehicles be EVs where feasible.
Congressman Dan Kildee (D-MI), along with U.S. Senators Debbie Stabenow (D-MI), Lamar Alexander (R-TN), Gary Peters (D-MI) and Susan Collins (R-ME) introduced the Driving America Forward Act, legislation to expand the electric vehicle and hydrogen fuel cell tax credits by raising the cap for additional 400,000 vehicles per manufacturer to be eligible. The bill is supported by the Alliance of Automobile Manufacturers, the Edison Electric Institute and scores of clean energy corporations and environmental NGOs, but has not been included in the current “tax extenders”
But this legislation was not only left out of the recent outline of tax extenders. Republicans, after handing $2 trillion to the richest American in their stunning tax giveaway bill, have decided to pretend to take the populist approach by criticizing current and these proposed EV incentives as mostly benefiting the rich. George Will wrote a column entitled “Concerned that government is rigged in favor of the rich? End this tax credit” supporting efforts by Sen. John Barrasso (R-Wyo.) and Rep. Jason T. Smith (R-Mo.) to repeal the tax credit.
A coalition of 34 right wing interest groups urged Congress not to extend the electric vehicle tax credit. In a letter, the groups argued that “subsidies for electric vehicles overwhelmingly benefit the rich.” The letter falsely claims that EVs are dirtier than gasoline-powered cars. Environmental and consumer advocates point out that Republican EV opponents are purposing ignoring the more than $3 billion in annual federal taxpayer subsidies for oil companies, since big oil is providing the lion’s share of their donations to GOP members of Congress. Advocates contrast this amount with the far smaller $670 million the EV tax credit cost in 2017.
Never to be outdone when it comes to hypocrisy by anyone, President Trump, who opposes even current EV tax credits, tweeted prematurely about a possible deal between GM and a fledgling company called Workhorse, to build a small number of electric trucks at the shuttered Lordstown plant near Youngstown, Ohio. Yet no company could use robust EV tax credits more than Workhorse, a company with fewer than 100 full time employees who had less than $500,000 in revenue last quarter. Trump is offering a pathetically inadequate response to the huge EV opportunity, while the Chinese he complains so much about continue to dominate the global market with more than 40% of global sales.
Trump’s trade war response is self-defeating. Instead of advocating a policy to beat the Chinese in manufacturing of EVs, he is threatening to erect a trade barrier specific to EVs, which will only add costs on all cars for Americans and US automakers. As it is, China produced more than 1.2 million EVs last year, while the US manufactured fewer than 400,000, Chinese production is growing much faster.
Moreover, Trump’s EPA is set to rollback fuel economy standards, in part by arguing a lack of demand for the EVs who tax credit it is attempting to end thus lowering demand.
All of this argues for a system that provides higher EV tax credits for lower priced cars, as PPI has proposed, to spur larger EV fleet growth, benefit middle income consumers most, cut cost of driving, oil imports and greenhouse gas emissions, and face down the faux-populist arguments from the right.
In terms of climate change, Transportation is now the largest source of U.S. greenhouse gas emissions, driven almost entirely by oil consumption in vehicles. Any serious plan to cut America’s climate change emissions must replace oil burning engines with alternatives, like EVs. Additional benefits of lower oil consumption include ending reliance on imported oil, and lowering our trade deficit.
Fortunately, America’s electricity system is getting much cleaner very quickly, so EVs will be increasingly low-emitting. Coal’s share of US electricity production has dropped in half in the last two decades, and continues to fall rapidly. Meanwhile, remarkably, ALL new U.S. electricity capacity last year had lower emissions than oil—with wind (46%), natural gas (34%), solar (18%), and other renewables and battery storage (2%) accounting for all of it.
As for consumers, the costs of owning and operating electric vehicles is lower than oil-based cars already, with fewer repairs and no gasoline costs, which means that when production reaches scale and sticker prices come down, total costs of EVs will be lower than oil-burning cars. The average price per gallon of gasoline is more than $2.50 nationally while it costs less than half that–$1.10 per “eGallon”–to charge an electric car, according to the U.S. Department of Energy.
Moreover, polling shows that EV tax credits are broadly popular with Americans, including Republicans. Strong majorities, including 71% of Republicans, say a $7,500 tax credit would increase their likelihood of going electric. And 44% of voters planning to replace their wheels in the next 5 years will consider going electric, but they need incentives to do so.
Meanwhile, research by MIT’s David Keith and Christopher Knittel notes that” that even if every U.S. vehicle sold were electric starting today, it would take until 2040 for 90% of vehicles in use to be electric.” This suggests that getting started as soon as possible with more effective EV tax credits that reach average consumers will be critical to decarbonizing US transportation.
New tax credits might also include a mechanism to allow those who lease, rather than buy, EVs to gain tax benefits. In addition, tax credits of some type ought to apply to fleet operators who buy electric vehicles to offer rides to consumers. As EV become increasingly cheaper to operate per mile traveled, ride-hailing services will be among the first to switch, and can impact broader consumer markets.
As GM has suggested, Congress in infrastructure legislation ought to create incentives to deploy electric chargers in the places they make the most sense, and to lower the cost of charging stations by scaling them: “drivers who park on the street or who live in apartment buildings without charging don’t have an easy way to use a home charger. Congress ought to create federal incentives to deploy charging stations in multi-unit buildings, in malls, at grocery stores, and so on. Congress should especially create incentives for employers to deploy charging stations for their employees at work.”
All of this should be discussed when the House Energy and Commerce Committee will hold a hearing later this week on plans by the Trump Administration to rollback increases in the Corporate Average Fuel Economy standards, even as the carmakers themselves sent a letter to President Trump asking for him to compromise with California and others states and find CAFÉ increases all can support.
And as the Economist has noted, “China’s plans for making cars…use industrial policy to overtake the West on the road to the future. Mark Wakefield of AlixPartners, a consulting firm, identifies a key component of this as a “strategy to dominate” electric vehicles.”
Trump’s trade war won’t work. And his opposition and those of some Republicans in Congress to thoughtful EV tax credits and fuel economy increases are only holding back U.S. industry while China and others pass us by. The U.S. needs a serious EV policy – of effective tax credits aimed at the middle class, and charging infrastructure build out, so that EVs can reach scale and benefit consumers and the nation more quickly. And we need them soon, before it’s too late for America to compete.