The Impact of the 2024 Election on EV Tax Credits

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The Impact of the 2024 Election on EV Tax Credits

Since the early 2000s, the U.S. government has incentivized the adoption of hybrid and electric vehicles (EVs) through tax credits. This initiative began in 2002, shortly after the Toyota Prius was introduced and years before Tesla unveiled its first 250-mile range EV. These incentives have become a cornerstone of the American automotive landscape, significantly contributing to the growing popularity of EVs and hybrid vehicles.

The effectiveness of these tax credits in fostering the adoption of cleaner vehicle technologies in the U.S. is supported by research. However, as electric vehicles become increasingly embroiled in political debate, the future of the EV tax credit is uncertain, especially with the upcoming November elections. The current version of the EV tax credit faces potential repeal threats from some members of Congress and presidential candidates, highlighting its precarious position amidst a deeply divided political climate.

EV Tax Credits Crucial for Biden’s Environmental Objectives

The automotive industry and regulatory bodies are actively working to adapt to what is shaping up to be a predominantly electric future, with significant steps being taken to align with this vision.

Stellantis, along with other car manufacturers, has committed to adhering to California’s more stringent emissions standards. Meanwhile, the construction of new electric vehicle (EV) and battery factories in traditionally conservative regions of the South, promising thousands of new jobs, suggests a solid foundation for the industry’s future regardless of political climate.

However, the fate of EV tax credits under this evolving landscape appears less certain. A centerpiece of President Joe Biden’s Inflation Reduction Act (IRA) passed in 2022, the EV tax credit underwent substantial modifications. Previously, it offered up to $7,500 for new EV purchases until manufacturers reached a sales threshold. The IRA’s revamped criteria now impose stricter eligibility requirements, focusing on the sourcing of battery materials and components, indicating a nuanced approach to encouraging EV adoption while addressing supply chain and environmental concerns.

The debate over the future of EV tax credits has become a point of contention across the political spectrum. Ohio’s Senator J.D. Vance, for instance, proposed a bill to eliminate the Inflation Reduction Act’s (IRA) EV tax credits, suggesting instead a $2,500 incentive for vehicles made in the U.S. Similarly, former Republican presidential candidate Nikki Haley voiced intentions to repeal all green energy incentives under the IRA, including those for EVs. Senator Joe Manchin, a key figure due to his swing vote, has also targeted the IRA’s mineral-specific rules for criticism.

Former President Donald Trump, a notable critic of EV policies and now the Republican nominee, has indicated he would seek to repeal EV tax incentives if elected for a second term. Trump has criticized EVs for their perceived limitations and costs, arguing that incentives for EVs undermine the Rust Belt’s manufacturing base and could increase dependency on China.

As the election approaches, the future of EV tax incentives remains uncertain, influenced by a wide range of factors. The outcome could potentially shift federal legislative power to those who oppose current tax incentives for electric and alternative fuel vehicles, signaling a significant change in the direction of U.S. energy and automotive policy.

If President Biden secures a second term, the trajectory for electric vehicles (EVs) and their supporting infrastructure looks promising, with continued investment and the extension of the Inflation Reduction Act’s (IRA) EV tax incentives until 2032. Conversely, a shift to Republican control of both Congress and the presidency could lead to efforts to dismantle Biden’s legislative accomplishments.

However, GOP political consultant Mike Murphy, of the EV Politics Project, suggests that the outright repeal of Biden administration’s EV initiatives is not guaranteed. Despite campaign trail rhetoric aiming at the repeal of EV tax credits and manufacturing incentives, achieving this might be more complex than anticipated. Murphy anticipates resistance from the business sector and state leaders from regions like Georgia, Ohio, and Tennessee, where EV and battery manufacturing investments have been significant.

In the scenario of a Trump-led administration and a Democratic-majority Congress, attempts could be made to modify the EV tax credits through federal regulations. Yet, such alterations would likely face legal challenges. Albert Gore, executive director of the Zero Emissions Transportation Association, emphasizes that the tax credits’ current framework and rule-making were meticulously designed to be robust and legally defensible, aiming for long-term policy stability.

Why Repeal?

EV tax credits have shown remarkable resilience, adapting and thriving for over two decades amid changing political and economic landscapes. Originating in the George W. Bush era, the initial 2002 tax credit for new hybrid vehicles was partly aimed at promoting fuel efficiency during the early stages of an energy crisis and a heightened focus on American energy independence following 9/11. These incentives carried through to the Obama administration but were designed to phase out after reaching a sales threshold, leading companies like Tesla and General Motors to eventually exhaust their allocations.

The evolution of these incentives into the current EV tax credits reflects a strategic shift towards bolstering domestic manufacturing and lessening the U.S.’s reliance on energy imports from countries like China and Russia. This approach has garnered bipartisan support over the years, with energy independence being a common goal across political divides, achieved through various means such as drilling for domestic oil, investing in renewable energy, and pushing for reduced emissions.

EVs play a pivotal role in enabling automakers to meet increasing fuel economy standards and are vital for long-term carbon emission reduction. However, the conversation around EVs and their associated tax credits becomes polarized when tied to climate change mitigation efforts. According to a Pew Research Center study, there’s a significant partisan divide on the perception of climate change as a threat—78% of Democrats view it as major, versus 23% of Republicans. Furthermore, a Gallup poll from 2023 illustrates a distinct party difference in attitudes towards EV adoption, with 54% of Democrats considering an EV purchase, compared to over 70% of Republicans expressing no interest in buying one. This divide underscores the complex interplay between environmental policies, energy independence, and political ideology in the discourse surrounding EV tax credits.

EV ownership has emerged as a symbol of environmental commitment, particularly among Democrats, perceived by some as “virtue signaling.” This stance aligns with their environmental values but may alienate potential Republican buyers, for whom the environmental narrative surrounding EVs can feel politically charged. Murphy highlights that this division implies owning an EV is seen as making a political statement, deterring a portion of the market.

Geographical demographics also play a role, with Democrats typically in urban areas where EVs are more practical, versus Republicans in rural zones where charging infrastructure is scarcer. Murphy suggests that the introduction of vehicles like the 2025 Ram 1500 Ramcharger, which features a gas engine range extender alongside its electric battery, could shift perceptions by offering a more universally appealing solution that transcends political divides.

What Happened Last Time?

The trajectory of the EV tax credit, closely observed by many, hints at its resilience amidst political negotiations. In 2017, a Republican initiative aimed at overhauling the federal tax code included a proposal to eliminate the $7,500 tax credit, which ultimately remained intact in the finalized tax plan. Similarly, in 2019, then-President Trump’s budget proposition, which sought to cut the credit to save the government $2.5 billion over a decade, did not lead to its elimination after the budget passed in August.

Further attempts to curtail the credit occurred last summer when the Republican-led House passed a bill targeting certain IRA provisions related to renewable energy, though it was halted by the Democrat-controlled Senate. Initially, this bill aimed to cut broader IRA spending and incentives, including those for alternative fuel vehicles, but was modified before the final vote.

This history indicates that while the EV tax credit often finds itself in the crosshairs during budget discussions, it ultimately serves more as a negotiation tool than an item readily sacrificed. Despite public displays of opposition, Republicans have historically allowed the credit to persist, while Democrats have consistently championed its preservation.

Uncertainty Prevails Until the Outcome is Clear

The future of the EV tax credit hinges on the upcoming election outcomes, including who occupies the White House and which parties control Congress. Predicting the election results at this stage is as uncertain as relying on a Magic 8 Ball.

Despite its survival through varied political landscapes, including a period when Republicans held the presidency and both chambers of Congress, the current polarized political climate could threaten even policies considered noncontroversial. However, former President Trump’s statements, emphasizing the restoration of American manufacturing jobs and proposing tariffs on Chinese-made vehicles, suggest some alignment with the objectives that the EV tax credits aim to support.

Albert Gore of ZETA points out the bipartisan agreement on energy independence as a foundational strength of the EV tax credits. He highlights the interconnected nature of policies supporting American dominance in both the production of critical materials and battery manufacturing, and the consumer incentives for EVs. This interconnectedness suggests that it may be counterproductive to target specific credits for elimination without considering their role in broader policy goals.

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