Federal EV Tax Credit Project – Ari Drayman's Portfolio

Project Description

In the fall of 2019 during my Sophomore year of college, I took a class called Political Power and American Public Policy. In this course, I received an introduction to the varying political powers across the United States and how these political powers in turn affect public policy. The course focused on questions such as, how and why does the government determine policy problems and solutions? How is the American policymaking process related to politics, and thus to power? What level or branch of government assumes responsibility for defining and solving certain problems? Why are some issues on the policy agenda and others not? Who is involved in the policymaking process, and which interests and voices dominate? What are some challenges of public policy implementation? How should policy outcomes be evaluated, and policy alternatives be formulated and enacted? At the end of the semester, the class had to complete a final project with a ten presentation explaining the topic you did, background information on the topic, and what policies you would propose to improve this issue in the United States. As a person who loves cars, I did my project on the federal electric vehicle tax credit and proposed some new policy on how automakers can sell more electric vehicles in the United States. This project was the inspiration for my applied qualitative methods paper that I completed in the Spring Semester. Overall, this project shows that when I am interested in a topic, I want to do a lot of analysis and research to learn more about it so I can become more informed in the future. Additionally, this project displays my presentation-making skills and shows my dedication to learning more about public policy regarding electric vehicles.

The Federal Electric Vehicle Tax Credit: Is it on the Brink of Extinction?

Throughout the 2010s, the electric car industry has burst into the automotive scene born anew. Although electric vehicles have been around for nearly two hundred years, the world now has the proper motives and technology to start supporting a growing electric vehicle market. To help grow this new market the United States government has implemented electric car tax credits and incentives to appeal to more potential buyers (Electric car tax credits & incentives for 2019, 2019). This incentive applies to both all-electric vehicles and plug-in hybrids as a buyer can receive a tax credit worth up to $7,500 as long as the vehicle meets all of the criteria created by the government (Electric car tax credits & incentives for 2019, 2019).

However, since the Environmental Protection Agencies funding has decreased and electric vehicles have become more affordable, electric cars sold after December 31, 2019, will no longer be eligible for tax credits on a federal level (State and Federal Electric Vehicle Incentives, 2019). Although there are still tax incentive/rebate programs on a state level, the phase-out of tax credits on a federal level could be detrimental to the growth of the electric vehicle market and cause major setbacks for electric vehicle automakers such as Tesla.

History

Since the birth of the automotive industry back in the nineteenth century, people in the United States and across the world have been interested in electric vehicles. This market was born back in 1828 when the horse and buggy were the most popular form of transportation (U.S Department of Energy, 2019). As the industry started to grow, there were three main energy sources that cars used to create power: steam, petroleum, and electricity. In fact, in the early twentieth century, electric vehicles accounted for one-third of all cars on the road in the United States (U.S Department of Energy, 2019).

However, after Henry Ford created and started mass producing the Model T, electric car popularity decreased as this car was cheaper to buy and easier to fuel. Other automakers followed suit and by the early 1970s gas-powered vehicles ruled the road with no competition. At the time, gas was cheap and people did not realize the impact petroleum-powered cars and trucks were having on the environment. After new government regulations were implemented on automotive safety and environmental friendliness from the clean air act of 1970, automakers started to explore electric-powered vehicles further than ever before (U.S Department of Energy, 2019).

The first modern fully electric vehicle that was mass-produced and revitalized the electric vehicle industry was the EV1 built by General Motors in 1996 (U.S Department of Energy, 2019). This car revolutionized the automotive market and helped form a new segment in the automotive industry dedicated to electric vehicles. Throughout the twenty-first century, electric vehicles have been gaining popularity fast in the United States, after the car company Tesla entered the market back in 2003 (Walsh, 2019). Tesla is crucial because they only produce electric-powered vehicles to date, they have been the only successful automotive company to not be bought out since World War II (Walsh, 2019). Although Tesla has hit some road bumps in its young history, the company has created a new chapter in automotive history combining both renewable energy and a practical vehicle that can be used daily. As EPA regulations become more stringent, and people want to live greener lifestyles, Tesla has been a role model for the cars of the future. They have done this by creating vehicles that have less of a carbon footprint yet do not compromise in other facets of what people desire in an automobile causing other automakers to start competing in the electric vehicle market like we have never seen before.

Technology-wise, the electric vehicle market is causing ripple effects within the car industry. Tesla is at the forefront of this change, they’ve collaborated with the DOE and have been able to establish nationwide charging infrastructure for electric vehicles across the country making it just as easy to fuel a car at the gas station (Electric car tax credits & incentives for 2019, 2019). Battery technology has also improved as high-end models of electric vehicles now have a range of two hundred and fifty miles or more. At a direct current fast charger (480 V), people can have their vehicles eighty percent charged in thirty minutes (Cattaneo, 2018). Additionally, electric automobiles are easier to maintain as they do not require as much service as a normal gas-powered vehicle (no oil changes or engine maintenance) and buyers will save over $1,000 a year since they will not have to fuel up their vehicles at the gas station. With fuel prices rising, this number could increase in the coming future (Cho, 2018).

Electric vehicles have gained unparalleled popularity after the federal government implemented a tax incentive program in 2008 which encouraged people to buy these new vehicles despite being more expensive than their gas counterparts (Gorzelany, 2019). As of 2018, Tesla and General Motors have sold over 200,000 vehicles that are eligible for the federal tax rebate (Gorzelany, 2019). In the United States alone, there is projected to be over half a million electric vehicle sales as of 2020 (Muthalan, Natesh M., et al., 2018). Without the federal tax rebate, the sales projections of electric vehicles will slow significantly and people will not feel as inclined to buy these cars since there is no benefit for them. Additionally, if sales of EVs decline at a fast enough rate, automakers will start to sell less environmentally-friendly vehicles to their consumers causing the environment to deteriorate at a faster rate than it already is.

Policy Proposal

Currently, transportation methods in the United States’ are the largest contributor to the greenhouse gas emissions problems with a large portion of this issue coming from gas-powered vehicles (Cattaneo, 2018). Despite this though, the market for electric power vehicles in the United States is considerably smaller than other foreign markets which are projected to have sales of over twenty million electric vehicles by 2025 showing that the United States is not too concerned about lowering its carbon footprint in the future as of right now (Muthalan, Natesh M., et al., 2018).

Yet, the current administration and President Trump have vowed to eliminate electric vehicle tax credits as he tweeted, “Very disappointed with General Motors and their CEO, Mary Barra, for closing plants in Ohio, Michigan, and Maryland. Nothing being closed in Mexico & China. The U.S. saved General Motors, and this is the THANKS we get! We are now looking at cutting all @GM subsidies, including….for electric cars. General Motors made a big China bet years ago when they built plants there (and in Mexico) – don’t think that bet is going to pay off. I am here to protect America’s Workers! (Gorelany, 2018).” In the republican parties eyes, they see the electric vehicle tax credit taking away jobs from automotive plant workers within the United States and view other countries as a threat to this industry. As a result, they want to cut all tax incentives for all-electric vehicles and plug-in hybrids purchased by consumers which would ultimately kill this growing industry in this country and never give automakers a chance to develop jobs in this newer field of vehicle technology.

Instead of eliminating the tax incentive for buying electric cars after a manufacturer sells 200,000 vehicles or because the United States government does not like how automakers are cutting jobs, the federal government should keep this program in effect until this country has electric vehicle sales compared to its foreign counterparts and the infrastructure for electric automobiles is developed at a higher level. If this country’s government is so keen on making America great again, why should we not try to rival other countries in producing and selling electric vehicles? Right now, the United States is viewed as being far behind the curve for vehicle innovation and as the market for electric vehicles increases and automotive technologies become more advanced jobs will be created but if we end the tax incentive program now, electric vehicles sales will significantly drop and the market would stall which could destroy the whole electric car/plug-in hybrid industry automakers have created in the United States.

Current Trends

Back in 2010 when the federal government tax incentive program was first put into effect, a vehicle had to meet certain standards to be eligible for a tax credit. These requirements included a purchase date after December 31, 2009. The vehicle had to use 1.) a traction battery (the most common form of battery used in almost all electric-vehicles), 2.) the battery had to be able to hold at least four kilowatt-hours on one charge, 3.) the car had to use an external plug-in source to recharge, 4.) the car had to have a weight rating of up to 14,000 pounds (to meet safety regulations), and 5.) the automobile had to meet emission standards (Electric car tax credits & incentives for 2019, 2019). In addition to all of these requirements controlled by the federal government, a “phase out” element was included which is dependent on the manufacturer of the vehicle being sold (Electric car tax credits & incentives for 2019, 2019). The “phase out” goes into effect after the second calendar quarter after a manufacturer has sold 200,000 eligible electric vehicles (Electric car tax credits & incentives for 2019, 2019). Since Tesla and General Motors have already passed this threshold, their electric vehicles/plug-in hybrids will no longer be credit eligible starting in 2020.

As of today, state politics have become more of an integral part of developing electric vehicle interests and infrastructure. Currently, California has done the most concerning electric vehicle sales by implementing a Zero Emission Vehicle program where the state requires automakers to sell a certain percentage of electric vehicles (Bellan, 2018). They have also implemented a rebate program to counteract the effects of the federal tax credit being phased out (Electric car tax credits & incentives for 2019, 2019). Other states and cities have followed suit. Atlanta, it is now required that all new residential homes and public parking facilities need to be able to accommodate electric vehicles and at least twenty percent of parking spaces have to be plug-in ready (Bellan, 2019). However, the fact of the matter is that electric vehicles are only holding an overall market share of just over one percent in 2017 and although that number is rising, the market growth has been inconsistent (Cattaneo, 2018). Without the federal tax credit, the number of electric vehicle sales will decrease across the country. The state of Georgia has already shown this trend as “EV registration peaked in 2014 at 10,540 units… [however] they [have] dropped to 6,846 in 2015 and just 2,549 in 2016 (Blanco).”

Policy Debate

After Congress passed the Energy Improvement and Extension Act bill in 2008 making tax credits available for electric vehicles/plug-in hybrids (Section 30d), studies have shown that more than thirty percent of electric car sales in the United States can be attributed to the federal tax credit and even impacting nearly half of the Nissan Leafs sales since it began hitting showroom floors (Cattaneo, 2018). Additionally, this bill included larger tax breaks for fleet acquisitions of electric/plug-in vehicles and offered manufacturing incentives. The executive branch has also taken part in this bill providing funding for research and development of electric vehicle technology (Cattaneo, 2018). This includes helping reduce the cost of batteries and helping build charging infrastructure across the United States. Improving battery technology has been one of the largest fronts in attracting people to buy electric cars second to the federal government tax credit since battery prices have fallen over seventy-five percent since 2016. As a result, electric vehicles are no longer as expensive as mid to high-end luxury vehicles and can be bought by the majority of America as of 2019 (Cho, 2018). This part of the tax incentive has been praised and has not been challenged since research shows that the tax credit is helping sell and improve electric vehicle technology. The debate revolves around the “phase out” manufacturer-base cap and whether it will be effective or not.

There have been many people critical of the “phase out” cap put in place by the federal government. Critics have stated their concerns stating “that this cap hamstrings the market and that the credits would be more effective if they had an expiration date instead (Cattaneo, 2018).” People have also taken issue with the federal government not indexing the tax credit to take into account inflation. The tax credit was created in 2008 and the incentives have remained the same. As of today, the tax credits are worth less than they were over ten years ago, and since federal tax credits are decreasing as more electric automobiles are being sold across the country (Cattaneo, 2018). There is little to no federal incentive for consumers to buy these vehicles anymore since fueling and regular maintenance of a gas-powered vehicle may be cheaper than paying the premium for an electric vehicle where the technology is not on par with a combustion engine just yet.

Another major issue concerning this policy is that the United States is not being aggressive enough to convince consumers to buy electric vehicles compared to their foreign counterparts. In Norway, for example, their parliament has removed purchase and import taxes from electric vehicle purchases, financed fast-charging stations every thirty-one miles on the main roads of Norway which were completed in 2018. This policy even reduces ferry rates for electric cars across the country. Additionally, Norway has also reduced taxes for electric vehicle registration, company cars, purchasing/leasing, and licensing fees. Electric vehicles also have access to free toll roads, get bus lane access, and municipal parking privileges (Cattaneo, 2018). These policies have made electric vehicles less expensive to own than gas-powered vehicles in Norway since people get all of the benefits of a gas-powered vehicle and have helped electric cars to become self-sustaining. This has helped the Norwegian Parliament phase-out tax incentives. China has also been cited as another country doing more than the United States in its promotion of electric vehicles as the Chinese government handed out more than $8.4 billion in electric vehicle incentives alone while the United States has only spent $2 billion between 2010 and 2019 in tax incentives (Cattaneo, 2018).

The last major part of this debate revolves around a lot of Americans possibly losing their jobs with the increase in sales and production of electric vehicles in the coming future. According to the United Auto Workers labor union who conducted a study titled “Taking the High Road: Strategies for a Fair EV Future” the study found that if electric vehicle production increases, more workers will be displaced, shifting contracts and employment to non-auto companies to build components of electric vehicles elsewhere. According to Sam Abuelsamid, the principal analyst at Navigant Research who focuses on mobility: “A lot of the individual small components that go into vehicles today, especially in engines, is going to go away.” putting thousands of people out of jobs (Thibodeau, 2019). Automakers like Tesla have already moved in this direction as manufacturing robots complete most of the assembly of the vehicles being sold. Since there are fewer components that need to be built, there is less need for people to assemble cars like we have since the automotive industry began to take shape.

Suggested Policy Solutions

Currently, this is the perfect opportunity for the United States federal government to pass a new bill concerning incentives and infrastructure changes related to electric vehicles. Since the “phase out” manufacturer-base cap is starting to take effect, the Environmental Protection Agency has been relaxing regulations, the US government and its people first need to have a reality check, is this country truly wants to fix the pollution problem we are causing through our transportation methods. If this answer is a resounding yes, then the United States government should first look at the policies that other countries across the world have implemented such as Norway, and start following their lead because as of 2015, the United States has produced the second-highest amount of total CO2 emissions at five billion tons of carbon dioxide and the second-highest amount of CO2 emissions per capita at 15.53 tons (“CO2 Emissions by Country 2019”). Additionally, the United States accounts for 16% of the world’s carbon emissions in 2019 (“Each Countries Share of CO2 Emissions”).

The United States needs to be implementing alternative incentives for people to buy electric vehicles such as 1.) remove high purchase and import taxes, 2.) reduce taxes for vehicle registration, 3.) provide free toll when driving on the highway, 4.) financed fast charger stations every fifty miles, etc. (Cattaneo, 2018). This is because although there are a lot of benefits to tax credit incentives, they cannot last forever as a potential financial crisis could cause the program to go under (Cho, 2018). The United States should also raise the gas guzzler tax to deter people from buying combustion engine-powered vehicles with bad gas mileage. Additionally, in this policy solution, there would need to be a stipulation mandating automakers to produce a certain amount of jobs to support electric vehicle production and growth. If these policy changes were put into place, I believe that electric vehicles could have a bright future here in the United States as people would be more convinced to invest their money in electric vehicles as the technology gets better and the vehicles become greener.

The Future of the Issue

Unfortunately, the future of the federal electric vehicle/plug-in hybrid tax credit is far less clear than the suggested policy solution would seem to indicate. According to Kristin Dziczek, the Vice President of the Center for Automotive Research, “incentives are pulling away and overall U.S. fuel economy and greenhouse gas standards appear to be relaxing.” Tariffs are increasing, and this government administration does not care about the environmental impacts transportation is having in the United States (Bellan, 2018). The idea of jobs being cut in the automotive world scares a lot of people about the rise of electric vehicles here in the United States (Thibodeau, 2019). Gas-powered vehicles have been the focal point of the automotive industry for nearly a century. Why should we change our ways now? Although there have been many examples of electric vehicles being successful in foreign automotive markets, the automotive industry in America is conservative as people would rather drive their gas-guzzling trucks and high-end sports cars over trying to change the way we see transportation as we know it.

In the upcoming 2020 presidential election, it will be interesting to see if any candidate brings up a plan to address gas-powered transportation policy. Will any candidate has a plan to support electric vehicle incentives that will convince consumers to buy greener lower footprint vehicles? If the next administration focuses more on the impact gas-powered cars are having on the environment and tries to find ways to convince people to buy vehicles with less of a carbon footprint, then policy changes will move forward and electric cars will become more popular in the United States as they have in other countries.

Conclusion

The question of whether or not to change the federal tax credit for buying electric/plug-in hybrid vehicles has pitted scholars and politicians against one another. Both sides of the debate hold passionate opinions and believe their solution is best for the future of transportation of American citizens. The issue of receiving tax credits for buying electric/plug-in hybrid vehicles takes on a dire need because it deals directly with the future of the world and the impact we are having on the environment in the United States. Particularly in a time where other foreign nations are making more aggressive strides toward a greener economy, the United States should have a responsibility as one of the world’s leaders to take charge of improving its policy regarding electric vehicles. The US needs to show that Americans can be compensated for helping make the world a cleaner place. Changing the policy altogether seems like the most direct way to target this issue. However, the complexities of tax credits and altering road laws/regulations make it far more difficult than one might think. Though it will not likely change within the next few years, debates about receiving tax credits for buying electric/plug-in hybrid vehicles will continue in the United States as long as climate change becomes more of an issue in the future. Unfortunately, that would seem to indicate that the incentives for buying greener electric vehicles will continue to be a topic within our national political discourse for decades to come.

Work Cited

Bellan, Rebecca. “The Grim States of Electric Vehicle Adoption in the U.S.” CITYLAB, October 15, 2018, https://www.citylab.com/transportation/2018/10/where-americas-charge- towards – electric-vehicles-stands-today/572857/https://www.altenergymag.com /article/2019/03/the – impact-of-electric-cars-on-the-automotive-industry/30627

Blanco, Sebastian (2017, November 20). “How Critical is the EV Tax Credit?” Automotive News, November 20, 2017, http://www.autonews.com/article/20171120/OEM11 /171129965/how- critical-is-ev-tax-credit

Cattaneo, Lia. “Plug-In Electric Vehicle Policy.” Center for American Progress, June 7, 2018, https://www.americanprogress.org/issues/green/reports/2018/06/07/451722/plug- electric-vehicle-policy/

Cho, Renee. “Will Electric Cars Take Over the World?” Columbia University, April 23, 2018, https://blogs.ei.columbia.edu/2018/04/23/will-electric-vehicles-take-world-just-green-really/

“CO2 Emissions by Country 2019.” World Population Review, November 5, 2019, http://worldpopulationreview.com/countries/co2-emissions-by-country/

“Each Countries Share of CO2 Emissions.” Union of Concerned Scientist, October 10, 2019, https://www.ucsusa.org/resources/each-countrys-share-co2-emissions

“Electric Car Tax Credits & Incentives for 2019.” EnergySage, September 8, 2019, https://www.energysage.com/electric-vehicles/costs-and-benefits-evs/ev-tax-credits/

Goldman, Josh. “Hey Congress! Here’s Why You Can’t Scrap The Electric Vehicle Tax Credit.” Union of Concerned Scientist, November 17, 2017, http://blog.ucsusa.org/josh-goldman /hey- congress-heres-why-you-cant-scrap-the-electric-vehicle-tax-credit

Gorzelany, Jim. “Federal Tax Credits Are Already Being Phased Out For Some Models, With EV Incentives in a State of Flux Nationwide.” MyEV, March 7, 2019, https://www.myev.com/research/interesting-finds/electric-vehicle -incentives-update

Gorzelany, Jim. “Here’s Which Automakers Will Suffer If Trump Ends Electric Car Tax Credits.” Forbes, December 10, 2018, https://www.forbes.com/sites/jimgorzelany/2018/12/10/. heres-which-automakers-will-suffer-if-trump-ends-electric-car-tax-credits/#299da3559068

Jurvetson, Steve. “Case Study: How Tesla Changed the Auto Industry.” SUPPLYCHAINDIVE, February 20, 2018, https://www.supplychaindive.com/news/case-study-how-tesla- changed-the-auto-industry/517251/

Muthalan, Natesh M., et al. “Electric Vehicle—Disruptor of the Automotive Ecosystem.” INFOSYS, 2018, https://www.infosys.com/industries/automotive/white-papers /Documents/disruptor-automotive-ecosystem.pdf

“State and Federal Electric Vehicle Incentives.” Center for Sustainable Energy, 2019, https://cleanvehiclerebate.org/eng/ev/incentives/state-and-federal

Thibodeau, Ian. “Shift to Electric Vehicles Will Radically Change Auto Factories.” The Detroit News, September 5, 2019, https://www.detroitnews.com/story/business/autos/2019/09/05/ shift-electric-vehicles-radically-change-auto-factories/2208961001/

“Timeline: History of the Electric Car.” U.S. Department of Energy, 2019, https://www.energy.gov/timeline/timeline-history-electric-car

Walsh, Dylan. “New Case Study Takes up Tesla’s Entry into the Auto Industry.” MIT Sloan School of Management, May 13, 2019, https://mitsloan.mit.edu/ideas-made-to-matter/new-case- study-takes-teslas-entry-auto-industry

To: Congress of the United States of America

From: Ari Drayman

Subject: The Federal Electric Vehicle/Plug-in Hybrid Tax Credit

Date: December 9, 2019

Executive Summary: The federal government electric vehicle/plug-in hybrid tax credit is helping the car industry go in the right direction, Congress can improve the hybrid industry by removing the “phase out” manufacturer-base cap and adopting other foreign electric vehicle incentive programs similar to Norway’s, this would emphasize an urgency to rectify climate change.

1. Issues with the United States Government Electric Vehicle Tax Credit

1. The “phase out” manufacturer-base cap is too low of a number to stop giving out tax credits
  - Tesla and General Motors have already passed this threshold in 2018 in only ten years
2. Technology and infrastructure is not up to par with gas vehicle counterparts
  - Buyers sacrifice convenience to buy greener vehicles
3. Tax credits are worthless in real money today due to inflation of the market from when they were first introduced back in 2008

2. Implications of Implementing the Proposal

1. Automakers would be more inclined to produce electric/lower emissions vehicles
2. Consumers will have a better reason to buy vehicles with a lower carbon footprint
3. Electric vehicles would become self-sustainable quicker so consumers do not need tax incentives as compensation

3. Conclusions and Implications

1. The United States Government Electric Vehicle Tax Credit has had a positive effect on the automotive market
  - More people are buying electric vehicles
  - Automakers have a reason to produce lower emission vehicles
2. The federal government should get rid of the “phase out” manufacturer-base cap and implement international vehicle incentives that have been shown to work in Norway and China that will convince consumers to buy electric vehicles/plug-in hybrids and as a result, will reduce greenhouse gas emissions
3. Consumers would be more willing to buy electric vehicles/plug-in hybrids

Reference: