Public Opinion Supports Electric Vehicle Tax Credits

The US public wants electric vehicle tax credits to be open to cars made anywhere.

The new US House of Representatives will likely revisit some critical legislation adopted last year this year. One issue the US Congress should revisit is domestic sourcing requirements and other limitations on electric vehicle (EV) tax credits under the Inflation Reduction Act (IRA).

We suggest that these limits on incentives in the IRA do not reflect US public opinion or global political logic. They are a major point of conflict between the United States and its allies in Europe and Asia. When President Emmanuel Macron visited the United States last month, for example, he met President Joseph R. Biden raised the matter with him.

Our research suggests that US public support for EV subsidies does not depend on economic nationalism or equity concerns. Instead, the US public tends to adopt the technologies faster by making the EV tax credit available to everyone.

Admittedly, the IRA has made some important steps for climate policy. It also generously funds several climate initiatives by providing a $7,500 tax credit for EV purchases. It fixes a major problem with the existing system of EV tax credits by lifting a manufacturer-level cap that restricted credits after the manufacturer sold more than 200,000 vehicles in North America. For reference, Tesla has sold around 360,000 vehicles in 2021.

Sales numbers for EVs are only likely to increase. California, Washington and New York state that new cars sold in these states must be EVs or plug-in hybrids by 2035, and several other states are likely to follow their lead. In the face of these state mandates, the pre-existing cap of 200,000 severely limits the availability of EV tax credits, thereby hindering the decarbonisation of the transport sector. In California alone, nearly 1.8 million new cars are expected to be sold in 2021.

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Although the IRA admirably removed restrictive sales limits, it greatly limited EV credits in other ways. In response to concerns that EV credits benefit the wealthy, the IRA now restricts these credits to households earning less than $300,000 and single-filing taxpayers earning less than $150,000. Credits are limited to cars under $55,000 and SUVs, vans or trucks under $80,000.

Furthermore, given China’s dominance of the EV supply chain and the U.S. protecting its own manufacturers at the insistence of U.S. Senator Joe Manchin (DW. Va.), the IRA would restrict tax breaks for extracting critical battery minerals to U.S.-assembled cars. processed, or recycled domestically or from countries with fair-trade agreements such as Chile and Australia. By 2023, manufacturers must source 40 percent of vehicle battery critical minerals domestically or under fair-trade agreements, and by 2026 they must source 80 percent.

The plan has drawn angry reactions from US allies in Asia and Europe, which the United States sees as discriminating against foreign-made vehicles and violating World Trade Organization rules. IRA supporters, however, point out that the tax credits reflect equity concerns and help US automakers regain global competitiveness and create domestic jobs.

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In recent months, several carmakers have tried to find a way around the IRA’s clause about onshoring the EV supply chain. In the House of Representatives, lawmakers introduced the Affordable Electric Vehicles for America Act, which essentially makes a tax credit available for all EVs. However, what seems to be missing from the IRA debate are the views of US consumers on who should be eligible for EV tax credits.

In a recent article, we argue that the US public does not support restrictions on who should be eligible for EV credits. Using an original survey-based experiment, we find that limiting eligibility for incentives to US automakers or vehicles manufactured within the United States has no effect on policy support. This result holds even when we prime respondents with an economic nationalism framework, such as the argument that EV incentives benefit foreign companies over domestic companies.

We found that respondents wanted EV incentives to be universal. Respondents do not support income-based or car price-based restrictions. In this respect, the IRA may be at odds with public opinion regarding the general policy design that favors certain forms of redistribution.

We conducted a concurrent survey in Japan, where subsidies to domestic firms are an established feature of industrial policy, and found similar support for a universal tax credit policy.

Ukraine’s invasion and Organization of the Petroleum Exporting Countries (OPEC) production cuts are focusing policy attention on energy security. While some argue for policy measures to increase domestic oil and gas production, others emphasize achieving energy security by reducing demand for fossil fuels and not by increasing supply. The reduction in demand depends in part on how quickly the transportation sector moves from internal combustion engine-based vehicles to EVs. Thus, in addition to running in tension with public opinion to make EV tax credits available to all, restrictions on who can claim EV credits could slow the transition to a cleaner transportation sector.

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OPEC’s decision last fall to cut oil production, and the resulting drop in gas prices at the time, underscores the vulnerability of the US transportation sector to global events—another reason to accelerate the decarbonization of the transportation sector. To achieve a faster transition, it is important to design a decarbonisation policy package that garners broad-based public support. At least for EV tax credits, our research suggests that public support is not affected by equity concerns or economic nationalism. Instead, the US public tends to adopt technologies faster by making the tax credit available to all.

Sijeong Lim He is an assistant professor at Korea University.

Nives Dolsak is the Stan and Alta Barrer Professor in Sustainability Science at the University of Washington.

Aseem Prakash is the Walker Family Professor of Arts and Sciences at the University of Washington.

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Seiki Tanaka is an assistant professor at the University of Groningen.

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