How long will Congress protect tax credits for renewables and EVs?

December 27, 2018

U.S. government tax credits for electric vehicles are under greater risk.Recent statements from the White House and U.S. senators have created a growing level of uncertainty around the duration of federal tax credits for renewable energy sources and electric vehicles (EVs). At stake are several elements of the clean energy policy put into place during the past decade to promote the benefits of renewable energy.

According to a Reuters article, the Trump administration is maneuvering to significantly reduce or end the subsidies as soon as 2020. The statements from White House economic adviser Larry Kudlow came after General Motors announced plans for U.S. plant closings and layoffs. Kudlow specifically cited the $2,500 to $7,500 federal tax credits available to consumers who purchase a plug-in EV (such as the models built by GM).

From the article:

“As a matter of our policy, we want to end all of those subsidies,” Kudlow said. “And by the way, other subsidies that were imposed during the Obama administration, we are ending, whether it’s for renewables and so forth.”

All EV manufacturers facing greater scrutiny

Although GM was singled out, other EV manufacturers are also feeling the scrutiny. In fact, Tesla has been extremely active in lobbying to lift the current cap imposed on manufacturers.

The article explains how manufacturers are approaching the threshold:

The tax credits are capped by Congress at 200,000 vehicles per manufacturer, after which the subsidy phases out. GM has said it expects to hit the threshold by the end of 2018, which means under the current law, its tax credit scheme would end in 2020. Tesla Inc. said in July [2018] it had hit the threshold.

Two senators have proposed variations of entirely ending the electric car tax credit or phasing it out across the auto industry no later than 2022. But others have proposed lifting the per-manufacturer credit while extending the current benefits an additional 10 years.

ITC nearing end-of-2019 step-down

All of this focus on subsidies comes as the solar Investment Tax Credit (ITC) is nearing its first step-down deadline. Signed into law in 2015, the ITC—which is applied to reduce income tax debt—is equal to a percentage of the cost of eligible equipment, such as some commercial solar systems. Together with other solar incentives, this solar tax credit has been a significant driver of solar-based projects throughout the U.S.

The ITC provides a dollar-for-dollar reduction in income taxes a company would otherwise owe for projects started before the end of 2019. The incentives will begin stepping down from the current 30% benefit on January 1, 2020. They will continue stepping down by 4% per year until 2022, when they permanently fall all the way to 10%.

 

The ITC provides a dollar-for-dollar reduction in income taxes a company would otherwise owe for projects started before the end of 2019.

 

A change on the horizon?

Although recent activities in the U.S. Capitol have clouded the immediate future of renewable energy subsidies, a change in momentum might be on the horizon. There’s a growing sense of optimism for those who seek to maintain—or even extend—the electric car tax credits and other clean energy policies. That optimism stems from the balance of power in the U.S. House having shifted toward a more environmentally-progressive agenda built around the benefits of renewable energy.

The article cites expectations stemming from the 2018 midterm election results:

Democrats will take control of the U.S. House in January and are unlikely to agree to end subsidies for electric cars and many have been pushing for additional incentives.

However, the reality remains: With a divided Congress and efforts to roll back current policies still in the works, nothing is certain. As a result, anyone counting on the current subsidies should understand the urgency to act quickly or risk missing out—especially with the ITC incentives stepping down after 2019.

 

Related links:

10 questions to shed light on Solar Renewable Energy Credits (SRECs)

INFOGRAPHIC: Why you should take advantage of the solar Investment Tax Credit ASAP

Solar incentives, policies and advocacy: 5 info-packed sites to save and share

Forecast says there may never be a better time to invest in commercial solar

State-by-state: A definitive list of solar policy resources

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