Congress on Friday passed climate legislation with tax incentives aimed at speeding adoption of medium and heavy-duty trucks, particularly those serving the last-mile delivery sector.
The U.S. House voted along party lines, 220-207, to approve the Democrat-backed Inflation Reduction Act of 2022 (IRA), a $745 billion package that contains grants and incentives to reduce the cost of clean energy and healthcare, along with tax reforms.
The IRA, a pared down version of President Joe Biden’s “Build Back Better” agenda rejected by Republicans, passed the Senate last week. It now heads to the White House for Biden’s signature.
In addition to providing grants for zero-emission port equipment, medium and heavy-duty trucks — including those used for long-haul freight — can take advantage of tax credits in the bill for both electric vehicle purchases (made after Dec. 31, 2022) and for purchasing and installing battery-charging infrastructure.
The EV purchase tax credit covers either the vehicle’s incremental cost — the price difference between a diesel truck and the electric counterpart — or 30% of the truck’s purchase price, whichever is less. The incentive is capped at $40,000 per vehicle purchase. The infrastructure credit provides up to $100,000 per charger.
But because new heavy-duty electric trucks can cost $300,000 and up, the legislation “seems 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,” Beia Spiller, director of the transportation program at the nonprofit research group Resources for the Future, which studies the implications of vehicle electrification, told FreightWaves (see chart).
Investment costs for last-mile trucks and buses
Source: Resources for the Future/Argonne National Laboratory
“The cost differential between EVs and internal combustion engine long-haul trucks can be hundreds of thousands of dollars,” Spiller said. “With $40,000 being a fraction of the cost differential, whether this will move the needle for larger long-haul trucks remains to be seen.”
In states such as Washington that have adopted aggressive timelines toward moving to zero-emission trucks, the legislation’s incentives could come into play even faster.
“Our industry prefers tax incentives versus issuing a mandate on the adoption of electric trucks, so the legislation is a positive,” Washington Trucking Associations President and CEO Sheri Call told FreightWaves. “At the same time, I question whether a $40,000 incentive for a new fully electric Class 7 or 8 vehicle, which can be three times the cost of its diesel-fueled equivalent, will be enough to make a difference.”
Ann Rundle, vice president of electrification and autonomy at ACT Research, pointed out another potential limiting factor: a restriction provision included in the IRA placed on the percentage of raw materials used in the battery cell manufacturing and battery pack itself.
“It is a sliding scale over time that requires either the raw materials come from the U.S. or they are processed here in the U.S.,” Rundle told FreightWaves. “I see this as key to obtaining the credit. It isn’t a slam dunk that any clean commercial vehicle would qualify for that full $40K tax credit.”