How to reform the federal electric vehicle tax credit

Travelers on the road this holiday season may have noticed a growing number of electric vehicle (EV) charging stations at parking garages, rest stops and elsewhere. It would be fair to assume the market for electric vehicles is exploding. Looks can be deceiving though. At 2 percent of the U.S. auto market, the EV market is still maturing. Consumer awareness is growing by leaps and bounds, but consumer adoption has yet to reach the same level.

To be clear, there is excitement for the EV future. It is commonly accepted that EVs offer tremendous economic and environmental benefits to the U.S., from significant job creation to making America more energy independent and, of course, greatly reducing carbon emissions.

{mosads}A federal tax credit passed in 2008 paved the way for consumer interest in EVs. The law provided taxpayers with a $7,500 tax credit for EV purchases while addressing transportation sector emissions — the sector now responsible for the greatest share of carbon emissions in the U.S. economy. The credit included no end date, but was designed to phase out as each auto manufacturer reached 200,000 qualifying vehicles sold. 

When it was first considered, the tax credit had the strong support of members of Congress from both political parties, all of whom recognized that consumers needed an incentive to shift from gas to electric. During floor consideration, Sen. Orrin Hatch (R-Utah) noted, “Consumer acceptance of this exciting new technology is vital, and these credits will make it easier and more economical for consumers to choose vehicles that will move us away from dependence on less clean and more expensive transportation fuel produced by other nations.”

Car buyers today are still taking advantage of the tax credit, but the benefit will be severely restricted unless Congress quickly reforms it. Because of the 200,000-per-manufacturer cap, which some automakers are beginning to reach, consumers are provided with uneven incentives, essentially limiting the pool of electric vehicles for which they could receive the credit. Lifting the cap will ensure consumers maintain the choice to drive the car they want. The steady increase in electric vehicle sales has brought us closer to a self-sustaining market. However, we are not there yet.

Fortunately, leaders from both parties in Congress are working to reform the EV tax credit during the lame-duck session of Congress and multiple measures have been introduced. One bill, introduced by Rep. Diane Black (R-Tenn.) in the House and Sen. Dean Heller (R-N.V.) in the Senate, would reform the indefinite, per manufacturer tax credit cap currently in law and replace it with an uncapped tax credit that applies to all makes and models and sunsets in 2022.

Similarly, the Electric Cars Act introduced in the House by Rep. Peter Welch (D-Vt.) and in the Senate by Sen. Jeff Merkley (D-Ore.) would also remove the manufacturer cap and would extend the EV tax credit for 10 years.

While there is growing congressional consensus to reform the current tax credit, special interests are trying to derail it altogether. Any proposal that rolls back or eliminates these incentives necessary to move the industry forward will put the United States at a competitive disadvantage.

As Congress considers reform, members should adhere to the following criteria to foster greater consumer adoption:

• embrace the economic and environmental promise of EV vehicles
• give consumers the freedom to decide which model EV they want while providing continued affordability
• lift the per-EV manufacturer cap in the current tax credit so that future caps neither penalize market leaders nor shut out later arrivals to the EV market

Electric vehicles are the future. Without reform to the tax credit, we run the risk of ceding our competitive advantage other countries seeking to advance EV technology. Reforming the electric vehicle tax credit by lifting the per-manufacturer cap will level the playing field and spur innovation among domestic manufacturers — ensuring America maintains its leadership position in the hyper-competitive, global auto market.

This is a bipartisan issue. It’s attracted support from both sides of the aisle because it’s a commonsense approach to build consumer acceptance, accelerate market growth and reduce carbon emissions and our nation’s dependence on foreign oil. 

Bob Perciasepe is president of the Center for Climate and Energy Solutions (C2ES), an independent voice for practical policy and action to address our energy and climate challenges. Perciasepe has 40 years experience in environmental policy, most recently as Deputy Administrator of the U.S. Environmental Protection Agency (EPA).