Otis Singleton
Electric vehicles (EVs) are an important part of the global shift towards sustainable and emission-free transportation. To encourage the adoption of EVs, governments worldwide have implemented various incentives and subsidies, including federal legislation. In the United States, the Inflation Reduction Act (IRA) has played a significant role in extending and enhancing these incentives. The IRA, a cornerstone of President Biden's administration, includes a federal EV tax credit, providing consumers with financial incentives to purchase EVs. This credit was previously targeted for elimination by the Trump administration, but has been preserved and extended through 2032 by the IRA. The act allocates $1 billion to replace heavy-duty vehicles and school buses with clean EVs and provides funding for electrifying the United States Postal Service fleet.
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What You'll Learn
The Inflation Reduction Act
Extended Tax Credits for EV Purchases
The Act extends tax credits for individuals and businesses purchasing new and used EVs, providing up to $7,500 per vehicle through 2032. This credit is now referred to as the "New Clean Vehicle Tax Credit" or "Advanced Manufacturing Production Credit", and it includes hydrogen fuel cell electric vehicles. The previous cap on the number of vehicles per manufacturer eligible for the credit has been removed, benefiting early EV makers like Tesla and General Motors.
Incentives for Used EV Purchases
The Act includes incentives for used EV purchases, allowing buyers to receive a credit of up to $4,000 or 30% of the sales price, whichever is lower. This provision ensures that lower-income drivers can also make the switch to electric vehicles. The sales price of the used vehicle must be less than $25,000, and the vehicle must be at least two years old.
Funding for Electrifying Federal and Heavy-Duty Fleets
The Act allocates $3 billion to electrify the federal fleet, specifically targeting the United States Postal Service. This initiative is expected to generate significant financial savings and emission reductions. Additionally, the Act provides $1 billion to states, municipalities, Indian tribes, and non-profit school transportation associations to replace heavy-duty vehicles and school buses with clean EVs.
Support for EV Charging Infrastructure
Impact on EV Market and Climate Goals
The Act's tax credits and incentives are expected to make EVs more affordable and accessible, particularly for those in rural areas. By reducing the upfront cost of EVs, the Act aims to accelerate the transition from gasoline to electric vehicles. This shift will help reduce global warming emissions, as EVs emit roughly half the emissions of similar gasoline vehicles. The Act is also expected to spur private investments in the EV industry, bolstering U.S. manufacturing and supply chains.
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The Bipartisan Infrastructure Law
The BIL also establishes a Clean School Bus program, providing $2.5 billion for the purchase or lease of electric school buses. Furthermore, the law includes $6.135 billion for battery material processing, manufacturing, and recycling grants, as well as funding for the deployment of electric school buses, port electrification, and a domestic supply chain for battery production.
The BIL is part of the Biden-Harris Administration's efforts to establish US leadership in electric transportation and maintain global competitiveness in the automotive industry. The law aims to accelerate the adoption of electric vehicles, improve air quality, and reduce greenhouse gas emissions. It also sends a signal to manufacturers, consumers, and fleet operators that the United States is committed to prioritizing electric transportation.
The BIL is complemented by the Inflation Reduction Act (IRA), which includes additional policies and programs to promote US manufacturing and supply chains for clean vehicles. The IRA extends tax credits for electric vehicles and establishes a federal tax credit for used EVs, further incentivizing the adoption of electric transportation.
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The Infrastructure Investment and Jobs Act
Among its many provisions, the IIJA allocates over $7.5 billion specifically for the development of electric vehicle (EV) infrastructure. This includes funding for building out EV charging stations along highways, known as Alternative Fuel Corridors, to make it more convenient for EV owners to charge their vehicles during long-distance travel. The National Electric Vehicle Infrastructure (NEVI) Formula Program, established under the IIJA and overseen by the Department of Transportation (DOT), provides grants to state and local governments to support the deployment of EV charging infrastructure.
In addition to the direct funding for EV infrastructure, the IIJA also includes flexible spending of $43 billion, which can be utilized for various purposes related to the EV ecosystem. This includes battery manufacturing, grid updates to accommodate increased EV usage, retooling auto industry facilities, and retraining and rehiring existing auto workers to adapt to the changing automotive landscape.
The Act also addresses the issue of critical minerals, such as cobalt and lithium, which are essential for EV battery production. The IIJA provides grants, loans, and tax incentives to domestic mineral producers and automakers who source minerals from U.S.-based producers, aiming to reduce dependence on foreign sources for these critical resources.
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The Corporate Average Fuel Economy (CAFE) standard
The CAFE standard is regulated by the NHTSA under the Energy Policy and Conservation Act (EPCA) of 1975, as amended by the Energy Independence and Security Act (EISA) of 2007. The Environmental Protection Agency (EPA) calculates average fuel economy levels for manufacturers and also sets related GHG standards under the Clean Air Act.
In 2012, NHTSA established final passenger car and light truck CAFE standards for model years 2017-2021, which were projected to require a combined fleet-wide fuel economy of 40.3-41.0 mpg in model year 2021. The EPA also issued GHG standards, which were harmonized with NHTSA's fuel economy standards and projected to require 163 grams/mile of carbon dioxide (CO2) in model year 2025.
The final CAFE standards set goals that are consistent with Congress' direction to conserve energy and provide flexibility to the industry on how best to meet those goals using proven, available fuel-saving technologies. The standards are expected to save consumers billions of dollars in fuel costs, avoid the consumption of billions of gallons of gasoline, prevent millions of metric tons of carbon dioxide emissions, reduce air pollution, and reduce the country's dependence on oil.
NHTSA has proposed new fuel economy standards to reduce greenhouse gas emissions and fuel use by requiring a fleet-wide average of 58 miles per gallon by 2032. This proposal would increase CAFE requirements by 2% per year for passenger cars and 4% per year for light trucks, covering model years 2027 through 2032.
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The Clean Vehicle Tax Credit
For new clean vehicles, individuals can receive a tax credit of up to $7,500 per vehicle through 2032. This credit is available for vehicles purchased in 2023 or later, as well as those purchased in 2022 or earlier, with different lists of qualified vehicles for each year. The credit amount may be either the full $7,500 or a partial credit of $3,750, depending on the vehicle's battery components and critical minerals. To be eligible for the credit, the vehicle must have undergone final assembly in North America, which includes the United States, Puerto Rico, Canada, and Mexico. Additionally, there is an MSRP cap, income cap, and assembly/sourcing requirements for the credit.
For used clean vehicles, individuals can receive a tax credit of up to $4,000 for qualified vehicles. To qualify, the vehicle must be at least two years old, have a sales price of less than $25,000, and meet certain eligibility requirements. The modified adjusted gross income (MAGI) requirements for used clean vehicle purchases are lower than those for new clean vehicle purchases.
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Frequently asked questions
The Inflation Reduction Act extended electric vehicle subsidies.
The Inflation Reduction Act is a piece of legislation passed by the Biden-Harris Administration and the 117th Congress.
The act includes multiple policies and programs to promote the U.S. manufacturing and supply chain of clean vehicles.
The act includes a $1 billion allocation to replace class 6 and 7 heavy-duty vehicles and school buses with clean EVs. It also extends the New Clean Vehicle Tax Credit for individuals and businesses, allowing up to $7,500 per vehicle through 2032.
The act includes a $3 billion allocation to electrify the federal fleet, including vehicles and charging infrastructure for the United States Postal Service.
