Senate’s EV Investments Will Cut Energy Bills and Pollution

The newly released Inflation Reduction Act of 2022 has strong provisions for reducing consumers’ pain at the gas pump, supporting American manufacturing and energy security, and improving public health and the climate by cutting pollution. As NRDC’s President, Manish Bapna, said: “This is the ultimate clean energy comeback—the strongest climate action yet in the moment we need it most. Congress must pass it without delay.”

The Act will lower energy costs for lower and middle-income households by helping families transition to used or new zero emission electric vehicles (EV), together with owners of commercial truck fleets, as well as school and transit bus fleets. Driving on electricity is far cheaper than fueling on gasoline or diesel and will cut pollution that threatens our health and our climate.

The Act also helps the U.S. catch up with Europe and China in the global race to build EVs and manufacture batteries through provisions providing production tax credits, grants, and loans for new or retooled domestic facilities.

But Congress must make sure that these EV incentives are sent to President Biden for signature. We are in an urgent climate and health crisis, and the transportation sector is the largest contributor. By passing the bill, Congress can help accelerate the elimination of dirty tailpipes and reduce our transportation fuel bills. Coupled with strong emissions and fuel efficiency standards, the U.S. can be on track to exceed President Biden’s goal of making half of all new passenger vehicle sales zero emissions by 2030, while becoming a global leader in manufacturing clean vehicles.

The Specs on Vehicle Tax Credits

As any vehicle owner knows: purchasing, operating, and maintaining a vehicle is often the second biggest expense after housing costs. The Act will help lower this expense by providing:

• Middle and lower-income households up to $4,000 in tax credits for a used EV or up to $7,500 for a new EV to help offset the costs. (Fuel cell vehicles also qualify),
• Extension of the credits until the end of 2032 and removal of the original 200,000 vehicle cap per manufacturer—which numerous companies have exceeded,
• Tax credits only for non-luxury vehicles with Manufacturer Suggested Retail Price (MSRP) below $55,000 for passenger cars and with vans, pickup trucks, and SUVs below $80,000, and
• Credits only for vehicles manufactured in North America.

Additional credits for high-quality union jobs, which were part of the earlier Reconciliation package, were not included in this Act, and continued work is needed by Congress and federal and state agencies to prioritize investments in this manner.

Boosting the Domestic EV and Battery Supply Chain

In order to accelerate the build out of a domestic EV and battery supply chain, the Act couples the vehicle eligibility for the tax credit on minimum requirements for (1) the sourcing of critical minerals that are used to make vehicle batteries such as lithium and cobalt and for (2) where the batteries are assembled. For example, for the full $7,500 credit, an increasing portion of critical minerals must be extracted or processed in any country with which the U.S. has a free trade agreement in effect, or be recycled in North America, starting at 40% in 2024 and ramping up to 80% in 2026. The credit also requires that a growing percentage of a battery’s value is manufactured or assembled in North America, starting at 50% in 2024 and ramping up to 100% in 2028. 

These are new and ambitious requirements, and they will help make the more than $100 billion in planned U.S. investments by automakers and battery producers since President Biden took office become a reality. But once those projects get the green-light, they will take more than one year to be built and for materials processing or battery manufacturing to commence. Congress should make sure that the phase in of the minimum requirements can be met by manufacturers acting in good faith now to onshore production, and that EV deployment is not inadvertently limited in the next few years. Given this uncertainty, Congress should give DOE the ability to update the phase-in timeline after a careful assessment in 2023. Our climate and health crisis demands maximizing EV deployment now.

Before the U.S. tries to overtake other countries in mining critical minerals, we must ensure that it isn’t a race to the bottom by updating the outdated mining laws that were written way back in 1872, as well as improve processes under the National Environmental Policy Act. As my colleague Jordan Brinn has written about, today’s rules do not require stringent controls over mining waste and tailings management, provide sufficient information about potential impacts to communities, or result in adequate monitoring of water use and contamination along other problems. Congress should at least begin to address this in parallel through passage of the Clean Energy Minerals Reform Act of 2022, as this coalition letter of 76 organizations calls for here.

Delivering Clean and Green ($$)

Ever wonder why your neighborhood school bus, transit bus, or delivery vehicle can’t be quieter and pollution free? They can be, and the technology is here today that can be more affordable over the long run for fleets, once the cheaper fueling and maintenance costs are included. The adoption of EVs will also reduce our vulnerability to the oil price rollercoaster, and cut air pollution that hits communities—often where Black, Indigenous or people of color live—near highways and ports hardest. The Act helps overcome barriers for fleets making the transition by providing:

• $1 billion for operators of school and transit buses, as well as garbage-trucks, to switch to electric vehicles,
• $3 billion in grants for zero-emissions equipment and technology to be used at ports,
• $3 billion for the U.S. Postal Service (USPS) to purchase electric trucks. As noted by my colleague Britt Carmon, there is no longer any excuse for the USPS to not go green in a big way.

One potential correction needed in the current language is that credits for smaller commercial vehicles that are typically purchased by businesses—such as delivery vans—may inadvertently fall under some of the qualifications meant for personal vehicle owners (including the MSRP limit and household income limits). 

The bill also includes a $3 billion Neighborhood Access and Equity Grants program to help right the historic racial inequities of our highway system by providing funding to tear down highways that divided disadvantaged neighborhoods, build new connecting infrastructure, and help mitigate the damage. This program delivers a flexible, large set of eligible activities for local and state grantees to select, including construction of noise barriers and measure to reduce air pollution, dirty stormwater runoff, and heat-island effects that harm neighborhoods.

The historic clean vehicles policies in this bill complement also-historic transportation provisions in the bipartisan infrastructure law enacted last November. Combined, federal and state agencies now have a full array of investments that will save fuel and reduce carbon pollution from transportation (see this analysis of the infrastructure law’s potential to tackle climate change). Now we can look forward to a future with more transportation choices—clean cars, trucks, buses, trains, bikes, you name it—that confront the climate crisis.

Building U.S. Global Leadership

The Act also will re-spark the American ingenuity and innovation for which we’ve been known for globally. After all, the first battery-powered electric motor was invented in Vermont by Thomas Davenport (1834); the first successful electric car in 1887 by William Morrison, a chemist in Des Moines, Iowa; and the first materials for lithium-ion batteries developed in part with research in the U.S. by Stanley Whittingham in the 1970s which he would win the 2019 Nobel Prize in Chemistry. The Act provides:

• $30 billion in production tax credits for U.S. manufacturing of batteries, solar panels, wind turbines, and critical minerals processing,
• $10 billion in investment tax credits for clean technology manufacturing facilities,
• $20 billion in loans for new automobile factories to manufacture clean vehicles, and
• $2 billion in grants to retool existing automobile factories to manufacture new, clean vehicle technologies.

This Is the Bold Action We Need

We need this kind of bold action now by Congress to ensure the U.S. builds its leadership in the global clean vehicles race, that families and businesses across the country can benefit from lower energy bills, and to ensure we protect the health of our people and our environment.