EV Tax Credits: A Mixed Bag for U.S. Economy and Environment

A new study by economists has taken a hard look at the $7,500 tax credit for U.S.-made electric vehicles (EVs) under the Inflation Reduction Act (IRA). The findings? It’s complicated, but there’s a silver lining. According to The New York Times, Americans are seeing a two-to-one return on their investment in these subsidies.

The Good, the Bad, and the Heavy

The study, not yet peer-reviewed, found some positives. The tax credits have shifted profits to U.S. automakers and there are environmental benefits, though not the main factor. But there are drawbacks too. A loophole allowing subsidies for leased foreign-made EVs undermines the policy’s goals. Many buyers would’ve gone electric without the credit, diluting its effectiveness. And heavier EVs pose increased safety and environmental risks.

Felix Tintelnot, an associate professor at Duke University and co-author of the paper, noted, “What the IRA did was swing the pendulum the other way, and heavily subsidized American carmakers.”

Size Matters: The EV Weight Dilemma

The study highlighted an unexpected issue: the weight of EVs. Larger electric vehicles, particularly pickups like the Rivian, can impose greater costs in terms of road deaths and pollution due to their electricity needs.

Hunt Allcott, a co-author and Stanford professor, pointed out a stark contrast: “The harms imposed by the Rivian are three times the harms imposed by the Prius, in terms of air pollution and death from accidents. But we are subsidizing the Rivian and not the Prius.”

The Leasing Loophole and Trade-offs

A significant flaw in the IRA’s EV incentives is the leasing loophole. It allows subsidies for foreign-made EVs when leased, potentially undermining the law’s goals of boosting U.S. manufacturing. However, this provision may have helped avoid trade conflicts with European partners.

EVXL’s Take

The study’s findings underscore the complexity of EV policy. While the IRA’s tax credits are pushing the U.S. towards electrification, there’s room for improvement. The issues raised echo concerns we’ve seen in the Rivian and Tesla communities about vehicle size and efficiency. As the EV market evolves, policymakers might need to consider tweaks that encourage not just electrification, but also the production of smaller, more efficient EVs.

What’s your take on the EV tax credit? Is it doing enough to drive adoption and support U.S. manufacturing? Share your thoughts in the comments below.​​​​​​​​​​​​​​​​