Should Congress lift the cap on the 200,000 sales tax credit for electric vehicles?

The CEOs of the 4 largest US automakers have banded together and called on Congress to remove the current cap on the electric vehicle tax credit. The CEOs sent a letter asking Congress to renew the tax credit system that currently gives electric vehicle buyers $7,500 but ends when each automaker reaches 200,000 vehicles in sales.

CEOs are confident that dropping the tax credit cap will encourage mass adoption of electric cars and trucks by consumers.

The letter was addressed to Senate Majority Leader Chuck Schumer, Senate Minority Leader Mitch McConnell, House Minority Leader Kevin McCarthy and House Speaker Nancy Pelosi. It was signed by GM CEO Mary Barra, Ford CEO Jim Farley, Stellantis CEO Carlos Tavares, and Toyota North America CEO Tetsuo “Ted” Ogawa.

Last week, Ford executive chairman Bill Ford dropped by on Capitol Hill unannounced to make the case for the tax credit extension.

As an all-electric automaker, electric vehicle industry leader Tesla hit sales of 200,000 qualifying vehicles in December 2019. GM hit the cap of 200,000 vehicles in the last quarter of 2018, boosted by sales of the all-electric Volt and Chevy Bolt EV hybrid sedan. Toyota said in April it expects its credits to expire by the end of 2022. Ford has sold nearly 160,000 electric vehicles through the end of 2021 and could hit the cap this year. Other automakers predict that they too will hit the 200,000 mark by launching a range of new electric products.

Setting aside the tax credit cap could help boost sales as part of President Biden’s goal to shift 50% of all new car sales to all-electric transportation by 2030.

Opposing Perspectives on Clean Transportation Incentives

In May 2021, the Senate Finance Committee proposed legislation calling for a 14-14 tied vote for the Clean Energy for America Act, which included a proposal to increase the current federal tax credit for electric vehicles up to $7,500 on the purchase of a zero-emission electric vehicle. vehicle. The law was intended to eliminate the current cap of 200,000 vehicles per manufacturer, while the credit would be phased out over 3 years once 50% of US passenger vehicle sales are electric vehicles.

Sen. Debbie Stabenow (MI-D) proposed the legislation, which would increase the $7,500 tax credit by $2,500 for vehicles assembled in the United States and an additional $2,500 for electric vehicles built in facilities where production workers are members of or represented by a union, such as the UAW. Last year, many Democrats in Congress and President Joe Biden proposed increasing tax credits for electric vehicles up to $12,500, including a $4,500 incentive for state-assembled vehicles. United and made by unions. The proposal would also have phased out credits for electric vehicles made outside the United States, which has drawn opposition from Canada and other car-producing countries.

A $12,500 electric vehicle tax credit, it was claimed, would help accelerate the rate of adoption of electric vehicles in the United States, which currently accounts for 3.4% of all vehicles sold. Additionally, Biden has backed a 30% credit for commercial electric vehicles, a $4,000 tax credit for used electric vehicles, and made the current credit refundable at the point of sale.

The bill was blocked and had to be approved by the Senate and the House of Representatives. Given the divided Congress, a stay of the bill now seems unlikely.

In April, Sen. Joe Manchin (D-Coal) questioned the need to expand tax credits for electric vehicles in the face of strong consumer demand and Chinese production of battery components. “There is a waiting list for electric vehicles right now with fuel prices at $4. But they still want us to run a $5,000, $7,000 or $12,000 credit to buy electric vehicles. It makes no sense to me,” Manchin said. “When we can’t produce enough product for the people who want it and we’re still going to pay them to take it, that’s absolutely ridiculous in my mind.”

Manchin previously opposed the union-only incentive, as did Toyota.

The recent letter to Congress makes no reference to union incitement.

Next generation tax credits for low carbon technologies

Achieving emission reductions to reach economy-wide net-zero emissions by 2050 will require sustained technological innovation and widespread deployment of emerging low-emitting technologies, according to a World Resources Institute working paper. carbon technologies that are not yet commercially deployed at mass market scale. . The authors argue that tax credits are an important policy tool to support the early deployment of emerging technologies as well as more mature technologies that have not yet reached widespread deployment.

The paper outlines how decarbonizing the U.S. economy to achieve 50-52% emissions reductions by 2030 and net zero emissions by 2050 will require substantial deployment of available and emerging alternatives to carbon-based technologies. fossil fuels. The authors argue that there are shortcomings in the current tax credit capping structures currently in place due to critical design flaws.

  • Federal tax credits have been caught in an endless cycle of expirations and extensions, sometimes retroactively. These short-term tax credits create uncertainty and discourage long-term planning by the private sector.
  • Most clean energy tax credits are non-refundable, meaning they can only be used by tax-positive taxpayers or through the tax fairness market. A refundable tax credit allows the taxpayer to receive the full tax credit in the form of a payment or other compensation, regardless of the amount of tax owing. A direct payment option specifically refers to the option to receive payment for the full amount of the tax credit.
  • Once tax credits are in place, they should be reviewed periodically to ensure that eligibility and duration keep pace with rapidly changing technologies and markets. Without scrutiny, tax credits have, in many cases, failed to support innovation.
  • Existing federal tax credits do not apply to many low-carbon technologies that are critical to decarbonizing different sectors of the U.S. economy, including energy storage, transmission, medium and heavy vehicles zero emission, commercial and industrial heat pumps, processing industries. hydrogen technologies and production.
  • In other cases, existing tax credits, such as the Section 45Q credit, are inadequate and can be further enhanced to deploy emerging technologies such as direct air capture.

The framework for eliminating the electric vehicle tax credit cap

The U.S. Federal Electric Vehicle Tax Credit was first introduced in 2009 by the Obama administration and went into effect on January 1, 2010. It was intended to stimulate sales of low- and zero-emission vehicles in the states States, including plug-in hybrids, fuel cell vehicles and all-electric models. The tax credit of up to $7,500 on the purchase of a zero-emission vehicle could also be combined with other local incentives.

For years, major automakers have argued that the current policy of capping the tax credit at 200,000 sales penalizes early adopters of all-electric transportation technologies. Executives say credit is essential to keep vehicles affordable as production and raw material costs rise. Inflationary trends in the United States and abroad have affected automakers as they grapple with soaring raw material costs, particularly for nickel and cobalt used in electric vehicle batteries, and this Rising costs are squeezing automakers’ margins. The price of nickel has jumped more than 29% since last year. Prices for metals like aluminum used for vehicle bodies jumped more than 50% from a year ago.

The letter, which was seen by Reuters, comes as auto industry executives increasingly fear the window could be closing for the U.S. Congress to extend tax credits for electric vehicles, if Republicans regain control of one or both chambers of Congress next year. The CEOs said in the joint letter that they have committed to investing more than $170 billion through 2030 to support the development, production and sales of electric vehicles, including short-term investments of more than 20 billion dollars in the United States.

“We are asking that the per (automaker) cap be removed, with a sunset date set at a time when the EV market is more mature,” the automakers explain. “Recent economic pressures and supply chain constraints are increasing the cost of manufacturing electrified vehicles, which, in turn, is putting price pressure on consumers.”

“The coming years are crucial for the growth of the electric vehicle market and as China and the EU continue to invest heavily in electrification, our national policies must work to consolidate our global leadership in the automotive industry. “, continue the CEOs. “Removing the cap will encourage consumers to embrace future electrified options.”

“We are asking that the per (automaker) cap be removed, with a sunset date set at a time when the EV market is more mature.”

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