This is an extract from a brief by Energy Innovation titled “Electric Vehicle Incentives in the Build Back Better Act: Provisions Will Save Consumers Money, Boost U.S. Manufacturing, And Protect Public Health”
Strong incentives for passenger EVs are important for market transformation
Transportation is the largest source of greenhouse gas (GHG) emissions in the country, contributing 29 percent of all emissions in 2019 and those emissions are rising, unlike the electricity sector. Annual transportation emissions grew 22.9 percent between 1990 and 2019—the largest growth in annual emissions from any sector. Vehicle electrification presents a near-term opportunity for decarbonizing this sector, as driving an electric vehicle (EV) charged from any grid in the United States is now cleaner than driving a gas-powered vehicle.
According to Energy Innovation modeling, EV incentives in the Build Back Better Act (BBB) would have a critical impact on climate and air pollution by inducing rapid market transformation, which will also benefit those most impacted by transportation pollution. Along with a clean grid, rapid electrification of passenger vehicles and medium- and heavy-duty trucks would prevent 150,000 pollution-related deaths and save consumers $2.7 trillion by 2050.
Many EVs already cost less to own than fossil fueled counterparts over the vehicle’s life, and upfront cost parity for passenger vehicles is expected by the mid-2020s. Yet, higher up-front costs of new EVs remain a barrier for many consumers. Strong incentives would reduce purchase costs for consumers, while meeting President Biden’s goal of reducing 2030 passenger vehicle emissions 60 percent from 2020 levels.
Studies show tax credits accelerate market advances and technology adoption to reduce GHG emissions, while influencing consumer decisions. Furthermore, the BBB tax credits will enable the adoption of stronger vehicle standards that will set the U.S. on a path to 60 percent reductions in emissions from the transportation sector, as outlined in President Biden’s Executive Order.
The proposed tax credits for passenger vehicles in the BBB are as follows:
$12,500 max incentive per passenger vehicle, combining:
- $4,000 base for qualified EVs
- $3,500 for vehicles purchased before January 2027
- $4,500 for vehicles with final assembly in the U.S. at a union facility
- $500 for vehicles manufactured with no less than 50 percent domestic content in component parts and battery cells are manufactured within the U.S.
As proposed, the credit may not apply to vehicles over max suggested retail price of $80,000 for vans, SUVs, and pickup trucks or $55,000 for all other vehicles. These provisions are designed to reach more people, including those with low- to moderate-incomes, bolster domestic manufacturing, and support widespread EV adoption.
A reasonable income cap will maximize the market impact of the incentives
The proposed income cap is designed to ensure the EV tax incentive is available to as many people as possible, while excluding high-income individuals and households that are far less likely to need an incentive to motivate their purchase decisions. Moderate earners, on the other hand, still face financial barriers to purchasing EVs. The inclusion of a reasonable cap based on gross income (now $250,000 for individuals, $375,000 for head of household, and $500,000 for joint) is designed to capture middle- and moderate-income earners, while reflecting the large variation in costs of living throughout the U.S. However, the income cap should not be reduced any further beyond the current proposed limits, lest middle- and moderate-income earners be left out.
Heavy-duty vehicle tax credits are a critical part of the policy package
Medium- and heavy-duty vehicles are disproportionately responsible for air pollution in low-income communities and communities of color across the nation. Electrifying heavy-duty trucks presents an opportunity for significant action to protect the climate and improve air quality while targeting a low percentage of total vehicles. The BBB offers a 30 percent tax credit for electric heavy-duty vehicles (and 15 percent for hydrogen fuel cell vehicles), which can also be applied to owned or leased vehicles. Tax exempt entities can receive an elective payment in lieu of the tax credit. In addition to the tax credits, the BBB wisely includes funding for various U.S. EPA grant programs aimed at supporting the replacement of eligible vehicles with EVs, funding EV infrastructure, providing workforce development and training, providing technical support for the adoption and deployment of EVs, and targeting support for underserved communities and those impacted by transportation pollution.
Energy Innovation’s modeling finds the proposed 30 percent tax credits would lead to a 27 percent electric sales share for light- and medium-duty freight trucks and a 16 percent sales share for heavy-duty trucks by 2030, resulting in emissions reductions of 7 million metric tons (MMT) carbon dioxide equivalent (CO2e). Under a more “Optimistic Deployment” scenario, which lifts constraints to increase deployment, the 30 percent tax credit boosts heavy-duty electric vehicle sales to 23 percent in 2030, resulting in 11 MMT CO2e of emissions reductions.
Domestic manufacturing incentives for EVs and batteries will create US jobs and ensure global competitiveness
EV manufacturing incentives in the U.S. are key to ensuring an equitable workforce transition. Automotive industry jobs, which are higher paying and benefit from a larger percentage of unionized workers relative to other sectors of the economy, hinge on federal policy support for domestic EV manufacturing. Without this policy, the quality and availability of jobs for autoworkers may decline, due to existing downward pressures impacting the industry. The proposed incentives for domestic manufacturing in the BBB (the Domestic Manufacturing Conversion Grants and the Loans for Advanced Technology Vehicle Manufacturing), combined with the grant programs and R&D funding allocated in the Infrastructure Investment and Jobs Act (IIJA), will counter these pressures and support stronger job growth and union jobs in the U.S.
An analysis by the University of California, Berkeley and Energy Innovation shows that achieving 100 percent EV sales in the U.S. by 2035 could create 2 million jobs in 2035, but this analysis does not capture the additional job impacts associated with increased domestic manufacturing – thus 2 million jobs is likely the floor of what’s possible under a high EV deployment scenario.
Additionally, domestic manufacturing incentives would give the U.S. a much-needed opportunity to gain a foothold in the global EV market. The U.S. has lagged for years in EV manufacturing, and the gap is only getting wider. From 2010 through 2020, China manufactured the largest proportion of EVs globally at 44 percent, while Europe produced 25 percent. The Chinese government spent $60 billion on the EV manufacturing industry between 2009 and 2017. Conversely, by 2020, the U.S. had manufactured only 18 percent of the global EV stock, a decrease from 20 percent in 2017. This lag is compounding the problem, as automakers are committing more money to EV manufacturing overseas as well as offering a wider variety of models in other countries.
As EVs continue to become more affordable and even cheaper than conventional vehicles, sales will shift quickly. If the U.S. does not rapidly scale up EV manufacturing and supply chains now, we will lose the opportunity for global leadership and forgo trillions of dollars in economic benefits and high-quality jobs.
The complete brief can be accessed here