Electric Vehicle Credits and Alternative Fuels Provisions Included in Senate’s Clean Energy Act
On May 26th, the Senate Finance Committee held a markup of the “Clean Energy Act,” advancing the legislation with a 14 to 14 vote tie along party lines. While the bill included provisions broadly encompassing the energy sector, one section of the bill was dedicated to electric vehicles and alternative fuels. Specifically, the bill has provisions to increase electric vehicle (EV) tax credits, fund EV charging infrastructure, and expand commercial EV eligibility. Just before the markup, Finance chairman Ron Wyden (D-OR) released his modifications to the base bill, adding sustainable aviation fuel credits, additional EV credits for American-made and unionized-labor produced vehicles, and broadening the eligibility of commercial EVs to get a federal subsidy.
The Senate Finance Committee is unique that it doesn’t consider legislative text. Instead, the Committee considers a summarized version of the bill and then lets members offer amendments in a brief concept only, then trusts its staff to write the whole thing into legislation after passage. Readers can also download the Chairman’s marks, the full list of amendments, and the Joint Tax Committee score, and the recorded votes on amendments and the bill itself.
The transportation-related portions of this bill achieve some of the Biden Administration’s goals, including addressing climate change by targeting low- and zero- emission vehicles and encouraging alternative fuels that are more sustainable. Particularly, the chairman’s marks reflect the crux of the Administration’s main goals for increasing sustainability, as well as the focus on Buy America and support for union jobs.
While the base Clean Energy Act of 2021 covered a lot of ground, the following provisions in the original bill are relevant to the transportation directly.
Clean Fuel Production Credit
This would create a new credit for business for “clean” transportation fuels used in highway vehicles or aircrafts. Incentive levels depends on the lifecycle of the given fuel, as the credit will be a combination of $1 per gallon plus the emissions factor for the fuel, that equaling (1) an amount equal to the baseline emissions rate, minus the emissions rate for such fuel, divided by (2) the baseline emissions rate which the bill specifies as 75 kilograms of CO2 per 1,000,000 British thermal units for calculations before 2026. In order to qualify, fuel must be produced at a facility that meets certain wage and workforce requirements. After 2023, the $1 per gallon will be adjusted to inflation. Cost: $20.2 billion over ten years.
Fuel cell vehicle credit
This provision would replace the sunset date for the current $8,000 fuel cell vehicle credit with a phased-out credit system. Once sales of plug-in hybrid and fuel cell vehicles exceed 50% of annual new car purchases in the U.S., the second calendar year after this determination the credit will be reduced by 25%, the third calendar year by 50%, and the year after the credit will expire. Cost: $121 million over ten years.
Alternative fuel refueling property credit
This provision would modify existing law so that the cap is no longer “per location” but on a qualified alternative fuel refilling property, defined as any property used to store and dispense an alternative fuel other than electricity or a property where an electric vehicle can be recharged. This property cannot be for business use and must be your main home. Also, it would extend the definition of qualified fuels from those stated in 30C(c)(2)(B) to encompass all fuels that qualify for the clean fuel production credit. Cost: $345 million over ten years.
Electric vehicle credits
This would modify section 30D that defines EV credits to include three-wheeled vehicles, replace sunset date the 2- and 3-wheeled vehicles with the provisions below, and eliminate limitations on the number of credit-eligible EVs a manufacturer can sell. Starting January 1, 2022, it would designate EV credits as a refundable personal income tax credit. It will also require that taxpayers list the EV’s vehicle identification number (VIN) on their tax returns in order to claim an EV credit – this is an attempt to prevent EV credit fraud. When qualified fuel cell and plug-in electric vehicles have exceeded 50% of total annual new vehicle sales in the U.S., the Secretary of Transportation can phase out credit by 25% the second year after this determination, 50% for the third year, and 100% by the fourth year. Cost (with modifications listed below): $31.6 billion over ten years.
Credit for commercial EVs
This act would change the credit amount for commercial EVs to be the lesser of either 30% of the base cost of a qualified vehicle or the incremental cost as defined as the amount in excess an EV would cost to a comparable ICE-powered vehicle. To help with this process, the Secretary will publish an annual list of comparable prices for different types and classes of commercial EVs and their subsequent credit amount. Once total annual new commercial vehicles sales are comprised of more than 50% of EVs, there will be a 25% reduction in credit the second year after this determination, 50% reduction in the third year, then the year after will be 100% reduced. Cost: $5.2 billion over ten years.
Alternative fuel definitions
This would change the definition of alternative fuel to include nonliquid hydrogen, though nonliquid hydrogen must qualify as a fuel on its own and does not qualify as part of an alternative fuel mixture.
While most of Chair Wyden’s modifications encompassed clean energy production and investment and energy efficient building credits, he also introduced modifications to sustainable aviation fuel credits, EV credit amounts, and defining eligible commercial EVs.
Sustainable aviation fuel credit
This would create a new general business credit for sustainable aviation fuel. To qualify, fuel must also have at least a 50% reduction in lifecycle greenhouse gas emissions compared with petroleum jet fuel. The credit would be a base of $1.50 per gallon of a qualified fuel mixture plus “the applicable supplementary credit amount” at a maximum of $.50 per gallon. This supplementary credit is calculated by of one cent per one percentage over 50% that the sustainable fuel mixture is compared to petroleum jet fuel to reduce emissions. To qualify as a sustainable aviation fuel, it must have a lower lifecycle GHG emissions as compared to petroleum jet fuel. Cost: $293 million over ten years.
Further modifications to the EV credit
The Chairman’s modification would add an additional credit of $2,500 for new qualified plug-in electric drive motor vehicles where final assembly is at a facility represented by a labor organization. On top of that, it would provide an additional credit of $2,500 for qualified plug-in electric vehicles where the final assembly in the United States before 2026, and starting in January 2026, the base credit would increase to $5,000 for plug-in EVs. In total, a new qualified plug-in electric drive motor vehicle could be eligible for a credit of $12,500 if the vehicle is assembled in the U.S. at a facility represented by a labor organization. However, Wyden adds the stipulation that a manufacturer’s suggested retail price (MSRP) must be $80,000 or less to qualify for credits.
Qualified electric transportation options
This would broaden the definition of an eligible commercial electric vehicle to any qualified electric transportation option. To do so a vehicle must: move passengers, cargo, or property; must be propelled by an on-board electric system for at least 2/3 of its operation time between refuels; and if it relies partially on fuel, it must be renewable. This vehicle can only qualify as a new plug-in electric vehicle if it weighs between 3,000 and 14,000 pounds, has no more than 2 seats total, uses the interior space to carry cargo, is primarily used for delivering commercial cargo, and does not use any energy derived from the on-board combustion of fuel.
Math error authority
With a new purchase of a qualified plug-in EV, this would stimulate that a seller must report to the IRS: the purchaser’s name and taxpayer identification number, VIN of the qualified vehicle, battery capacity of the vehicle, verification that original use of the vehicle commences with the purchaser, and maximum credit purchaser is eligible to claim based on vehicle qualifications.
The committee voted on several transportation-related amendments:
- Grassley/Crapo/ Daines #2 – Removes Chairman’s mark language on lifting per-manufacturer caps on EVs and adds to the information listed under math error authority that the seller shall also report to the IRS verification that the vehicle is not leased. Failed 14-14.
- Cornyn/Crapo/ Lankford #3 – Excludes Chinese-produced EVs from eligibility for EV credit. Approved 28-0.
- Thune #4 – Lowers EV credit phase-out trigger to when EVs become 10% of annual new car sales. Failed 14-14.
- Cassidy/Crapo #3 – Lowers the EV credit to only non-luxury vehicles with an MSRP of under $47,500. Failed 14-14.
- Young/Crapo #4 – Adds an electricity fee to public EV charging stations at an equivalent rate to the fuel tax. Failed 13-15, with Lankford (R-OK) nay.
Members filed many other transportation amendments, but did not offer them for votes:
EVs (17 – 1 Democratic, 16 Republican)
3 Stabenow #1 Incentives for electric vehicles (Democratic)
47 Grassley/Cornyn #1 To prohibit providing subsidies to wealthy individuals to purchase electric vehicles
51 Grassley #5 To require a study of effects of the EV credit expansion on farm commodity prices
65 Thune/Crapo #3 An amendment to add income limits to the electric vehicle credits
67 Thune #5 An amendment to amend the electric vehicle credit for heavy vehicles
76 Portman #2 To require EV manufacturers to meet certain wage and environmental standards in the production of EV batteries to be eligible for the EV credit
77 Toomey/Crapo #1 Distributional impact of the Electric Vehicle (EV) individual tax credit
80 Toomey #4 To change the name of the bill (“Further Sending Tesla’s Stock Price to the Moon Act)
93 Cassidy #4 An amendment to study the impacts of widespread electric vehicle adoption (on the effects of the HTF & socio-economic contributions to HTF)
94 Cassidy/Lankford #5 An amendment to prevent the EV credit from applying to vehicles produced with rare earth minerals mined or processed in nations designated as committing genocide
103 Lankford #3 Prohibit high earners from being eligible for the electric vehicle tax credit
104 Lankford #4 Prohibit the electric vehicle tax credit from being used to purchase certain vehicles
105 Lankford #5 Prohibit the electric vehicle credit from being claimable until certain Treasury Department action
106 Lankford #6 Prohibit the electric vehicle tax credit from being used on vehicles produced in certain parts of the world
132 Barrasso #5 An amendment to repeal the electric vehicle tax credit
133 Barrasso #6 An amendment to means-test eligibility for the electric vehicle tax credit
134 Barrasso #7 An amendment to means-test the electric vehicle tax credit based on the cost of the vehicle
Green transportation (3 Democratic)
7 Cantwell/Stabenow, Cortez Masto #1 Technology and Platform Neutral Credit for Non-Passenger Modes of Transportation Propelled by Electricity
39 Cortez Masto #3 Green Bus Tax Credit Act 40 Cortez Masto #4 Greener Transportation for Communities Act
40 Cortez Masto #4 Greener Transportation for Communities Act
Sustainable aviation fuel (2 Democratic)
22 Brown/Whitehouse #1 This amendment may be cited as the sustainable aviation fuel blenders credit
34 Whitehouse/Brown #2 Blender’s credit for sustainable aviation fuel
Fuel (2 Republican)
50 Grassley/Cantwell #4 To extend the Biodiesel and Renewable Diesel Tax credits for three years
71 Burr/Crapo #1 Renewable Natural Gas Credit (renewable gas credit at $1/gallon)
59 Cornyn #7 To Strengthen the User-Fee Principle for America’s Highway System
68 Thune #6 An amendment to certify U.S. competitiveness
107 Lankford #7 Prohibit grandfathered facilities from collecting clean transportation incentives