Reconciliation Proposals Support Both Electric and Hydrogen Vehicles

We need both electric and hydrogen fuel cell vehicles—and the Build Back Better Act supports both

The transition to zero-emission vehicles (ZEVs) is underway. Third Way’s Decarb America analysis has found that electric vehicles (EVs) will comprise the vast majority of passenger vehicles in the future, with hydrogen fuel cell vehicles (HFCVs) playing a small role in decarbonizing the light-duty fleet but a larger role in decarbonizing medium- and heavy-duty vehicles, particularly heavy-duty trucks. Nevertheless, federal policy is needed to make sure ZEVs are affordable for all consumers, that drivers of these vehicles will be able to refuel wherever they go, and that U.S. workers and manufacturers will lead the global transition to ZEVs.

The House reconciliation package, the Build Back Better Act, includes several tax and spending programs that will help us meet these goals including consumer subsidies for EVs and HFCVs, funding to build out EV charging and hydrogen refueling infrastructure, and assistance for manufacturers to retool their facilities for ZEVs. EVs and HFCVs both receive robust support in the bill as currently written, though EVs stand to get a little more: this includes a tax credit for used EVs that is not available to used HFCVs, and more funding for EV charging than for hydrogen infrastructure.

Vehicle Incentives

While ZEVs are coming down in price, additional incentives will help get more of these vehicles onto the road faster and ensure every driver can afford one. The Build Back Better Act includes incentives for new and used passenger vehicles and for new commercial vehicles:

Tax incentives for new personal vehicles: The Build Back Better Act makes several changes to the existing tax credit for plug-in electric vehicles (30D). Under the new credit, new EVs would be eligible for a $4,000 base credit, plus an additional credit based on the vehicle’s battery capacity and additional credits if the vehicle is assembled in the U.S. in a unionized facility. The bill also extends the existing credit for new fuel cell vehicles (30B), which provides these vehicles with a $4,000 base credit, plus an additional credit based on the vehicle’s fuel efficiency. While the tax credits for new EVs and HFCVs are structured differently, both vehicle technologies would continue to be incentivized under the Build Back Better Act.

Tax incentives for used personal vehicles: The used car market is significantly larger than the new car market, a trend that’s growing as a result of the pandemic. The Build Back Better Act establishes a new tax credit of up to $2,500 for used EVs, but there is no tax credit for used HFCVs. Given the vast majority of light-duty vehicles will be electric in the future, a tax credit for used EVs will be important for ensuring lower-income motorists can afford to purchase an EV on the used vehicle market. By comparison, a tax credit for used HFCVs is unlikely to result in significant additional deployment or emissions reduction, as far fewer Americans will be purchasing HFCVs in the future and so there will be few of these vehicles on the used market. However, if policymakers think it is important to have equitable tax treatment for used EVs and HFCVs, a credit for used HFCVs would not create much cost to the federal government.¹

Tax incentives for commercial vehicles: The Build Back Better Act establishes a new 30% tax credit for purchasing commercial EVs, and commercial HFCVs are also eligible. This will help fleet owners and other businesses replace their existing fleets with electric and other clean cars, delivery vans, and trucks.

Refueling Infrastructure

The number of EVs and other ZEVs on the road will grow rapidly in the coming years, and we need to build out refueling infrastructure for these vehicles quickly to ensure drivers can refuel wherever they go. This buildout needs to happen along highway corridors and throughout our communities in homes, workplaces, and public places. The Build Back Better Act includes several tax and spending programs to accelerate this build-out, much of which is available for both EV and hydrogen infrastructure.

Tax incentives for refueling infrastructure: EV charging infrastructure and hydrogen refueling infrastructure are both eligible for the 30C tax credit, which provides a credit for individuals and businesses to install alternative fueling properties in their homes, workplaces, and other locations. The Build Back Better Act makes several changes to the credit, including providing an additional credit for expenses above $100,000 (the current cap) and adding labor requirements that businesses must meet to claim the full amount of the credit.

Grant funding for refueling infrastructure: The bipartisan infrastructure bill includes $7.5 billion in grant funding to deploy alternative refueling infrastructure, including $5 billion for EV charging and $2.5 billion for EV charging as well as hydrogen, natural gas, and propane fueling infrastructure. The Build Back Better Act includes a few additional programs that would complement but not duplicate these investments. One of these programs, the EV Supply Equipment Rebate Program, would provide $2 billion for EV charging at workplaces, multi-unit dwellings (MUDs), and publicly accessible locations; hydrogen refueling infrastructure is also eligible, though the total amount of funding that can be spent on hydrogen and direct current fast charging (DCFC) infrastructure is capped at 40% of the program. Another program is the EV Charging Equity Program, which provides $1 billion to build out EV charging in underserved and disadvantaged communities; hydrogen is not eligible for this program.

Manufacturing Assistance

While the transition to zero-emission vehicles is inevitable, it is not a given that U.S. workers and businesses will benefit the most from this transition. Federal assistance to help domestic manufacturers invest in new and retooled facilities to make EVs, HFCVs, and all of their components will protect and expand our auto workforce, grow a domestic supply chain for these vehicles, and boost the American economy.

The Build Back Better Act includes several programs to help retool facilities, including a reinstatement of the 48C manufacturing tax credit. This is a proven tool to build new manufacturing facilities and expand existing facilities to produce clean energy technologies. The bill would provide $25 billion for 48C over 10 years, including $4 billion set-aside for projects in automotive communities. Plug-in EVs and their components, as well as fuel cells, are eligible for 48C.

The bill also includes $1 billion for domestic manufacturing conversion grants to help manufacturers retool their facilities to produce zero-emission vehicles, including EVs and HFCVs. Finally, the bill expands the Advanced Technology Vehicle Manufacturing (ATVM) loan program, which has helped create or sustain tens of thousands of jobs building electric cars, to include zero-emission medium- and heavy-duty vehicles (as well as trains, maritime vessels, aircraft, and hyperloop technology). Given hydrogen will play a larger role in decarbonizing those higher weight classes, this expansion of ATVM will enable manufacturers to access ATVM to help retool for HFCVs.

The Senate’s clean energy tax proposal also supports both vehicle technologies, with some important differences.

While we have not yet seen reconciliation text from the Senate committees, we have reason to believe the Senate will similarly support both EVs and HFCVs. The Clean Energy for America Act—the clean energy tax package reported by the Senate Finance Committee in May 2021—includes many of the same tax incentives as the House’s Build Back Better Act, though there are some differences in the details.

For example, the Clean Energy for America Act extends both the 30B credit for new fuel cell vehicles and the 30D credit for new EVs; the credits would be extended until sales of new fuel cell and electric vehicles exceed 50% of total annual passenger vehicle sales in the US, and then would phase out over the following four years. Similar to the House bill, the Senate bill provides additional incentives for new EVs assembled in the U.S. and by union workers. The Senate bill also extends and expands the 30C credit for alternative refueling property, for which EV and hydrogen refueling infrastructure are both eligible.

One important difference is the Senate bill’s tax credit for new commercial EVs. The bill provides a tax credit of up to 30% of the incremental cost of a commercial EV (how much more the commercial EV costs than a similar vehicle powered by an internal combustion engine). While the House package would also allow operators of commercial HFCVs to claim this credit, the Senate bill does not include eligibility for commercial HFCVs. Given the role HFCVs will play in decarbonizing medium- and heavy-duty trucking, the Senate should make commercial HFCVs eligible for this credit.

Additionally, the Senate bill does not provide a tax credit for used EVs or used HFCVs. This credit will be particularly important for helping lower-income Americans afford an EV on the used vehicle market, so the Senate should consider establishing a credit at least for used EVs, if not for both.

Conclusion

Electric and hydrogen fuel cell vehicles are both needed if we are to transition fully to ZEVs. If done the right way, this transition will ensure every American can afford a clean vehicle and can refuel it wherever they go, and will enable U.S. workers and manufacturers to lead the market for these vehicles. As currently written, the House’s Build Back Better Act provides robust support to both EVs and HFCVs, with EVs receiving additional support in some areas. This additional support is commensurate with the larger role EVs will play in decarbonizing ground transportation. The Senate’s recent clean energy tax proposal also supports both vehicle technologies, though more can be done to enable faster deployment of commercial HFCVs. Policymakers should be aware that the Build Back Better Act as currently written will support both vehicle technologies and should work to maintain these provisions as the reconciliation process moves forward.