Congress enacted climate legislation on Friday that includes tax breaks for medium and heavy-duty trucks, notably those used in last-mile delivery.
The Democratic-backed Inflation Reduction Act of 2022 (IRA), a $745 billion plan that includes subsidies and incentives to cut the cost of clean energy and healthcare, as well as tax reforms, was approved by the U.S. House on a party-line vote of 220-207.
The IRA, a scaled-down version of President Joe Biden’s “Build Back Better” initiative, was approved by the Senate last week. It is now on its way to Biden’s signature at the White House.
In addition to grants for zero-emission port equipment, medium and heavy-duty trucks, including those used for long-haul freight, can benefit from tax credits in the bill for both electric vehicle purchases (made after December 31, 2022) and the purchase and installation of battery-charging infrastructure.
The EV purchase tax credit covers either the extra cost of the vehicle – the difference in price between a diesel truck and an electric truck — or 30% of the truck’s purchase price, whichever is less. The incentive is limited to $40,000 per vehicle. The infrastructure credit offers a maximum of $100,000 per charger.
However, because new heavy-duty electric trucks can cost $300,000 or more, the legislation “appears to be geared more toward incentivizing the purchase of smaller vehicles, such as cargo vans or box trucks used for short-haul package delivery in urban areas,” according to Beia Spiller, director of the transportation program at the nonprofit research group Resources for the Future, which studies the implications of vehicle electrification (see chart).
“The cost difference between electric vehicles and internal combustion engine long-haul trucks can be hundreds of thousands of dollars,” Spiller explained. “With $40,000 being a fraction of the cost gap, it remains to be seen whether this will tip the needle for larger long-haul vehicles.”
In places like Washington, which have set aggressive timeframes for transitioning to zero-emission trucks, the legislation’s incentives might kick in much sooner.
“Our business prefers tax breaks to mandate the use of electric trucks, so the law is a plus,” Washington Trucking Associations President and CEO Sheri Call told FreightWaves. “At the same time, I’m not sure a $40,000 incentive for a new completely electric Class 7 or 8 vehicles, which can cost three times as much as its diesel-powered counterpart, would be enough to make a difference.”
Ann Rundle, vice president of electrification and autonomy at ACT Research, mentioned another potential limiting factor: an IRA restriction provision restricting the percentage of raw materials used in the manufacturing of battery cells and the battery pack itself.
“It’s a sliding scale over time that involves either raw materials from the United States or processing here in the United States,” Rundle told FreightWaves. “I believe this is critical to acquiring the credit.” It’s not a certain conclusion that any clean commercial vehicle would qualify for the entire $40K tax credit.”
