Transitioning Transportation—Fast and Slow
One of Nobel Prize winner Daniel Kahneman’s unique insights into human decision-making is that we focus inordinately on the near future. Given that, it’s no surprise that so much of the discussion and reporting about the recently signed Inflation Reduction Act (also known as the “climate bill”) focuses on the ways it will affect the electric vehicle (EV) tax credit for consumers over the next couple of years.
Make no mistake: The $7,500 EV tax credit is crucial to making these vehicles affordable for all. While electric cars and trucks can offer big savings versus their gasoline-powered counterparts, when accounting for savings on fuel and on maintenance, bringing down the initial sticker price is key to spreading EV adoption.
But, in this case, the near-exclusive focus on these consumer credits obscures a more fundamental point about where we stand now in transportation—and where we are now headed over the next two decades.
As a result of the investments in the Inflation Reduction Act and last year’s Bipartisan Infrastructure Law, as well as state actions and the upcoming clean car and truck standards from the U.S. Environmental Protection Agency (EPA), we are on the cusp of a historic transformation in our transportation system; one that will give us cleaner vehicle options, together with expanded access to other mobility options like transit, biking, and walking to get around our communities.
But we cannot take any of this for granted. It will be up to the Biden administration—primarily those working to update clean car and truck standards at the EPA—to ensure those standards and investments are done right and in a timely manner so that we can clean the air of tailpipe emissions and address this climate and public health crisis.
It’s not just about cars, either. As a result of last year’s infrastructure bill, the Department of Transportation and state transport agencies have an unprecedented opportunity to reimagine our entire transport system and invest in one that is safer, cleaner, and more equitable, as my colleague Deron Lovaas details here.
The Inflation Reduction Act
The Inflation Reduction Act is the strongest climate action ever taken in the United States. For EVs, the measure does a host of important things: It helps lower- and middle-income households switch from gasoline vehicles into new and used EVs while also helping business fleets transition to electric trucks; it boosts the installation of charging stations in underserved and rural communities; it catalyzes investments in domestic manufacturing of EVs and battery supplies; it provides neighborhoods with access and equity grants to build new, connecting infrastructure as opposed to giant highways; and helps clean up America’s heavily polluted shipping ports.
On the consumer credits, the climate bill lifts the automaker cap on the number of vehicles that can receive the EV tax credit (up to $7,500 in credits) and limits those vehicles to lower- and middle-income households as well as to non-luxury vehicles. It is also transferable to dealers, effectively allowing the credit to be a point-of-sale rebate. This tax credit also establishes minimum North American manufacturing content over time and places limits on where the batteries and materials can be sourced.
The new requirements on these consumer credits have generated much of the attention. We have seen analyses by Consumer Reports and reports from automakers saying that in the near-term, this will mean that a number of models won’t qualify for consumer credits over the next few years. According to the Department of Energy, the measure immediately cut the list of eligible vehicles from about 72 to about 23. When additional requirements come into effect, initially even fewer vehicles may qualify for the full credit.
But two other incentives don’t come with these restrictions, and they could have huge benefits. For the first time, most buyers of used vehicles will get a tax incentive if they go electric. And then there are the commercial provisions. According to Wired:
“Smaller commercial vehicles, such as vans or pickup trucks, qualify for a credit of 30 percent of the purchase price, up to $7,500 per vehicle—the same as for passenger vehicles—a pretty good deal. But the bill offers a great deal for buyers of medium- and heavy-duty trucks, whose credit is capped much higher, at $40,000. On top of that, private or commercial buyers hoping to install charging infrastructure in their homes or businesses will qualify for a 30 percent tax credit up to $300,000—a big chunk of the price.”
Additionally, there is $3 billion to ensure the U.S. Postal Service buys tens of thousands of new electric delivery vehicles and their requisite infrastructure.
And the consumer incentives are just one piece of the puzzle.
Another key part is the tax credit of $35 per kilowatt hour (kWh) for each U.S.-produced battery cell. According to Axios, that’s about 35 percent of today’s average cost of producing a battery cell. And there is also an additional $10 per kWh tax credit for U.S.-produced battery pack modules, providing a similar scope of savings to manufacturers of those.
As a result of strong market demand and the investments in this climate bill, the United States may be able to attract more than $100 billion in EV and battery investments over the coming years—and that could help create 422,000 clean vehicles jobs, according to the BlueGreen Alliance.
In fact, in just the few weeks since the bill was signed, we saw announcements from both Toyota and Honda that they would each invest billions of dollars in additional U.S. battery production.
Now, it’s true that it will take some time until batteries are rolling out of these new factories. But once they open, these factories aren’t going anywhere: They will help deliver a low-carbon transportation system that can sustain us for decades to come.
“Where the bill could be truly consequential is in planting the seeds for technology adoption that drives emissions lower beyond 2030. Recent history shows that climate policies such as taxes, subsidies, and mandates matter most by catalyzing a virtuous cycle of higher demand that leads to more innovation,” Greg Ip wrote in the Wall Street Journal.
The Inflation Reduction Act also works hand in hand with last year’s historic Bipartisan Infrastructure Bill. That legislation provides $7.5 billion to build out the charging stations needed to serve the millions of new EVs that will soon be coming onto the roads, as well as $7 billion to help with battery recycling and battery materials processing. Crucially, billions more in funding is available to states to use to build even more charging or other clean transportation options.
Strong EPA and state standards are now needed
Delivering on the promise of these historic pieces of legislation requires at least one major, final step: EPA will need to issue strong federal tailpipe pollution standards for cars and trucks. Strong standards will ensure that manufacturers invest to build the clean, zero-emission vehicles we need. States who want to be in the front of the line for EV model offerings and sales can also adopt and implement stricter-than-federal programs, such as the Advanced Clean Cars, Advanced Clean Trucks, and Low NOx Heavy-Duty Omnibus programs developed in California.
Crucially, these standards must also do all that is possible to protect and prioritize underserved communities, including frontline communities that are already disproportionately overburdened by pollution from fossil fuels and other industries.
The road is cleared for a brighter, cleaner transportation future. It’s now up to the Biden administration to deliver on that promise by enacting strong, commonsense tailpipe pollution standards to ensure we keep accelerating toward a sustainable and affordable future, with a more just transportation system that serves the needs of all.