The new EV tax credits could create a huge mess
Good day, Protocol Climate friends and family. Today we’re looking at the new EV tax credit conundrum and how an entrepreneur decided to leave behind a dream job at Alphabet’s X lab to start a geothermal energy company — and find happiness. It’s enough to make your Protocol Climate team want to pivot to blueberry tart making full time. (Don’t worry, we’ll be right back here next week.) Read on!
The IRA has an EV tax credit problem
The Inflation Reduction Act is bringing mo' money to the electric vehicle industry — but it’s also creating mo' problems, thus proving Biggie right.
A handful of automakers are salty about how the EV tax credits in the bill are structured, for a variety of reasons, and claiming they’ll slow the EV adoption rollout. The incentive structure could be so detrimental, they argue, that automakers’ and the Biden administration’s EV targets for 2030 could be thrown into jeopardy.
The IRA is tearing down some roadblocks … Before we go into the IRA’s EV challenges, let’s reflect on the fact that it does some good for the industry.
- Most importantly, it no longer phases out the $7,500 tax credit once automakers sell 200,000 EVs. That means automakers from Chevy to Tesla are suddenly back in the tax credit game.
- It also includes a new $4,000 tax credit for used EVs for households with an annual income below $150,000 and individuals who make below $75,000.
- There’s also a new tax credit for commercial fleets. Sara Baldwin, the director of electrification policy at Energy Innovation, said they’re “expected to spur the adoption [of] more commercial EVs and electrified fleets.”
… but it’s throwing up a lot more new ones. EV tax credits have been a sore subject for Sen. Joe Manchin ever since Democrats introduced the Build Back Better Act. And with the IRA, some of his gripes have helped shape the bill.
- While the EV cap is gone for the tax credit, there’s now a price cap in place. EVs that come in under $55,000 for cars and $80,000 for SUVs and trucks are eligible under the IRA. For a company like Tesla, the prices of most of its current models mean they’re ineligible for the tax credit despite the EV sales cap lifting.
- The bill also includes provisions that kick in by 2024 that put further pressure on automakers. Half the credit would be tied to EV makers sourcing at least 40% of battery materials from mines or processors in the U.S. or countries where the country has free trade agreements.
- Batteries made with materials recycled in North America would qualify as well.
- The other half of the tax credit would be tied to manufacturing battery components in the U.S.
- Oh, and vehicles with any minerals from a “foreign entity of concern” would also fail to qualify for any of the tax credit. That includes China, which currently has a stranglehold on the world’s critical mineral supply.
- In short, it’s all about the minerals, baby. (OK, we will stop it with the ’90s hip-hop references, sorry.)
All this has automakers and trade partners up in arms. The supply chain is already a mess, and tracking where minerals come from is among the most challenging aspects to decode. Like everything else, prices for EVs have been on the rise all year (with one notable exception). Heck, Ford just jacked the price of the F-150 Lightning up by as much as $8,500 this week.
- These challenges have led the Alliance for Automotive Innovation, a group that includes GM, Volkswagen and Toyota among its ranks, to decry the bill’s requirements.
- John Bozzella, the group’s president, wrote in a blog post that 70% of current EV models “would immediately become ineligible when the bill passes and none would qualify for the full credit when additional sourcing requirements go into effect.”
- Many automakers have set EV sales goals of around 50% by 2030, a target the Biden administration has also set. But, Bozzella said, the new tax credit structure will make meeting those targets an uphill slog.
- The EU is also ticked about the mined-in-America provisions, claiming it could be in violation of World Trade Organization rules.
- Still, Baldwin said there are other policies in the bill that “could have a transformative impact on the U.S. economy and position the U.S. as a global competitor in EVs and other clean tech” in the mid to long term.
The climate would also like a word. The atmosphere does not have a trade group or political body to chime in, but I can’t imagine it’s overly happy about the way the new EV tax credits are structured either.
- Electric vehicles don’t emit carbon pollution (or other air pollution, for that matter). It stands to reason that getting more people out of gas-powered cars and into EVs, regardless of income, would be a net benefit for the climate.
- Robbie Orvis, Energy Innovation’s senior director of energy policy design, said the group’s model shows the transportation sector accounts for a “comparatively small share” of the IRA’s emissions cuts, partly due to the weaker tax credits and partly due to the sheer number of internal combustion vehicles on the road.
Even as it stands, the legislation — assuming it passes the House this week — could lower U.S. greenhouse gas emissions roughly 40% below 2005 levels by 2030. Still, it’s hard not to think about how a set of more robust EV tax credits could’ve cut emissions even further.
— Brian Kahn
How I made the most of a ‘rare’ opportunity
Kathy Hannun was working at Alphabet’s X innovation lab — which is devoted to researching and cultivating moon shot ideas — when she came across a relatively untapped opportunity in the U.S.: drilling into the Earth’s crust to access thermal energy for home use.
What followed was the decision that made her career. Because the idea didn’t quite fit the definition of moon shot (geothermal technology already existed and was widely used in countries like Sweden), she could either let it go and stay in a job she loved or say farewell and start her own company.
She went with the latter option and hasn’t looked back, co-founding Dandelion Energy with James Quazi in 2017. Five years later, Hannun said, the company is growing as fast as can be, but it wasn’t initially clear that it would be the success it has become.
Hannun’s story, as told to Protocol, has been edited for clarity and brevity.
We did an analysis of how much money people could save if they hypothetically switched from these expensive fossil heating fuels to geothermal heat pumps, and it was just astronomical. So it seemed like this great opportunity where the financial interests of homeowners were very well aligned with the most environmentally friendly solution.
I started to think that a spin-out might be a good option when it became clear that we actually had to start installing thermal heat pumps. The work we had done on the market analysis had made it clear that New York was the best state to start this business in.
Alphabet is a very famous and very strong brand, and we recognized that we needed to be very careful doing things like drilling 500-foot holes in customers’ yards under the then-Google brand. There's just a lot of risk there. It became increasingly clear that the reality of Alphabet as an amazing company was not necessarily compatible with the need to prove out our idea on the ground.
While we didn’t need that much money to get started, I had a lot of personal trepidation. I did not feel like I knew how to start a business; I had only really ever professionally worked at Google, so it was a very daunting idea. I remember the day that it dawned on me that this had to be a spin-out to work.
I was so stressed that day — literally shaking with anxiety — because I knew I was going to spin it out, even though a very large part of myself really didn’t want to because I knew it would be way outside of my comfort zone. But it was so rare to find an opportunity like that: where it will be so meaningful to me and will help so much on these issues that I care about if it works. I wanted to be the type of person that would seize that type of opportunity.
Get the full scoop behind how Hannun made her decision and what she learned here.— Lisa Martine Jenkins
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