Public Opinion Supports Electric Vehicle Tax Credits

The US public prefers that electric vehicle tax credits be open to cars manufactured anywhere.

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

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

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

Admittedly, the IRA made some important steps forward in terms of climate policy. It generously funds a number of climate initiatives, including by providing a $7,500 tax credit for EV purchases. It also fixes a major problem with the current system of EV tax credits by raising the manufacturer-level cap, which capped credits after manufacturers sold more than 200,000 vehicles in North America. For reference, Tesla sold around 360,000 vehicles in 2021 alone.

Sales of EVs are likely to increase. California, Washington and New York have enacted laws requiring new cars sold in these states to be EVs or plug-in hybrids by 2035 – and several other states are likely to follow their lead. Given these state mandates, the previous 200,000 cap would severely limit the availability of EV tax credits, hindering the decarbonisation of the transport sector. In California alone, approximately 1.8 million new cars were sold in 2021.

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While the IRA’s proposal raised sales restriction limits, EV credits are more limited in other ways as a result. In response to concerns that EV credits benefit the wealthy, for example, the IRA now limits these credits to households with less than $300,000 and single filers making less than $150,000. The credits are also limited to cars costing less than $55,000 as well as SUVs, vans, or trucks under $80,000.

Additionally, given China’s dominance of the EV supply chain, and U.S. Senator Joe Manchin (DW. Va.)’s insistence that the U.S. protect its own manufacturers, the IRA restricts tax credits for U.S.-assembled cars that the vital minerals of their batteries are extracted, processed, or recycled domestically or by countries with fair trade agreements, such as Chile and Australia. By 2023, manufacturers must source 40 percent of critical vehicle battery minerals domestically or under fair trade agreements, and, by 2026, they must source 80 percent.

The scheme has drawn angry reactions from US allies in Asia and Europe who see the United States as discriminating against foreign-made vehicles and violating World Trade Organization rules. However, IRA supporters suggest that the tax credits reflect equity concerns and will help US automakers regain global competitiveness and create domestic jobs.

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In recent months, some car manufacturers have tried to find a way around the IRA condition to push the EV supply chain forward. In the House of Representatives, lawmakers introduced the Affordable Electric Vehicle Act for America, which would provide a tax credit for essentially all EVs. However, what seems to be missing from the IRA debate are the opinions of US consumers about 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 found that limiting eligibility for incentives to US automakers or vehicles made within the United States had no effect on policy support. This result existed even when we framed respondents on economic nationality, arguing that EV incentives would benefit foreign rather than domestic companies.

We also found that respondents prefer EV incentives to be universal. Respondents do not support restrictions based on income or car price. In this respect, the IRA may be contradicting public opinion about general policy design that favors certain forms of redistribution.

We conducted the survey in Japan at a time when subsidies to domestic firms are an established feature of industrial policy, and we found similar support for the universal tax credit policy.

The invasion of Ukraine and production cuts by the Organization of the Petroleum Exporting Countries (OPEC) are focusing policy attention on energy security. While some argue for policy measures to improve domestic oil and gas production, others emphasize achieving energy security by reducing demand for fossil fuels and not by increasing supply. Reductions in demand depend, in part, on how quickly the transport sector switches from internal combustion engine vehicles to electric vehicles. So, as well as tension with public opinion that it is better to make EV tax credits available to all, restrictions on who can benefit from EV credits could delay the transition to a sector cleaner transport.

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OPEC’s decision last fall to cut oil production, and the resulting rise in gas prices at that time, underscores the vulnerability of the US transportation sector to global events—suggesting 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 can gain broad public support. Our research suggests that, at least for EV tax credits, equity concerns or economic nationalism do not affect public support. Instead, the US public favors faster adoption of technologies by making the tax credit available to all.

Sijeong Lim is an associate professor at Korea University.

Nives Dolšak is the Stan and Alta Barer Professor of 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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