Government incentives for fuel efficient vehicles in the United States
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The U.S. Energy Policy Act of 2005 established a federal income tax credit of up to $3,400 for the purchase of new hybrid vehicles, purchased or placed into service after December 31, 2005.[1][2] Vehicles purchased after December 31, 2010 are not eligible for this credit.[1][2] The law limited the tax credits to the first 60,000 eligible vehicles per carmaker, meaning that credits for popular models will be phase out before the tax break's scheduled expiration date. Note these are credits — dollar for dollar tax savings — not merely deductions. The tax credit is to be phased out two calendar quarters after the manufacturer reaches 60,000 new cars sold in the following manner: it will be reduced to 50% if delivered in either the third or fourth quarter after the threshold is reached, to 25% in the fifth and sixth quarters, and 0% thereafter.[1][3] The Internal Revenue Service is responsible for certifying that certain passenger autos and light trucks qualify for the credit and the amount of the credit.[3]
The Energy Policy Act of 2005 created incentives to encourage the purchase of low emission vehicles.[4] The Energy Independence and Security Act of 2007 expanded these incentives to include emerging electric vehicle, and plug in hybrid, technology.[4] The Energy Improvement and Extension Act of 2008 only acted to push back tax credit-claiming deadlines and include more electric vehicles in existing incentive programs.[4] Many speculated that more recent stimulus legislation would greatly expand existing incentive programs, but the legislation failed to include such provisions.[5] When passed, the American Recovery and Reinvestment Act of 2009 focused more on green infrastructure than personal transportation incentives. The act did allocate money, however, to equip government agencies with more efficient vehicles, created a grant program for diesel owners wishing to outfit their cars with cleaner burning technology, and added a significant tax incentive program for plug-in hybrids.[4]
The tax incentives that are the result of the Energy Policy Act of 2005 are offered to make pricier, but more environmentally friendly vehicles more appealing. Because the process of manufacturing many low emission vehicles (LEV), for example, a hybrid engine, is more technology intensive, and therefore more expensive, than the process of manufacturing a standard gasoline engine, the up-front cost of a hybrid automobile is greater than that of a car with comparable performance.[6] Many potential buyers will require economic incentive to purchase a more expensive LEV over an automobile that runs on gasoline, so a tax credit is offered to effectively cheapen the LEV and encourage the purchase of more environmentally friendly automobiles.
The characteristics and availability of an offered tax credit will vary based on the characteristics and popularity of the car in question, respectively. The size of the offered tax credit typically corresponds in value to the amount of money that the technology in question adds to the manufacture price of the car. For example, hydrogen fuel cell vehicles that are in the early stages of development are more expensive and receive a larger tax credit than a diesel car that is cheaper to make. Existing incentive programs are also set to phase out after a given maker sells 60,000 hybrid vehicles, so more popular models like the Toyota Prius are no longer subject to a tax credit.[7]
Incentives may also vary based on how well the car in question performs in these “green” categories.[8] For example, the buyer of a Tesla Roadster, a fully electric vehicle, will receive a much larger tax credit than the buyer of a standard hybrid, which will pollute much more during its lifespan.[9] The federal government now lists models that are pre-approved to receive a tax credit; some other models may qualify on an ad hoc basis.
US Department of Energy's Tax Credit Requirements
[10] The Department of Energy has specific requirements that car manufactures must meet, in order to receive tax credits from the government.
The Vehicle must be made by a manufacturer, and cannot be a previously purchased vehicle that has been converted into a Hybrid.
The Vehicle must be treated as a motor vehicle for it to fall under title II of the clean air act.
The Vehicle must be propelled to a significant extent by electricity. Must have a battery with the capacity of 4 kilowatt hours or more. The battery must also be capable of being recharged from an external source of electricity.
[10] Vehicles that have already been certified can qualify for the tac credit by meeting these additional requirements.
The vehicle must be new, and the original use for the vehicle by the taxpayer receiving the credit should not change.
The tax credit will only be given to the original purchaser of the vehicle, and not to a secondhand owner. If the vehicle is being lease, the tax credit can be claimed by the leasing company alone.
The vehicle must be used mostly in the United States.
The vehicle must be placed in service by the taxpayer by 2010 or later.
Classifications for tax credit certified vehicles
Diesel: Because diesel engines are typically more fuel efficient, and can run on cleaner blends of diesel fuel, diesel powered car buyers qualify for federal tax credits. Many Volkswagen diesel models are currently pre-approved for a tax credit of between $1,000 and $1,700. Because diesels are less common in the U.S. than standard gasoline cars, there are many more remaining tax credits for these Volkswagen models than there are for popular hybrid models like the Toyota Prius.[11]
Alternative fuel vehicles: Currently the only pre-approved alternative fuel vehicle is the Honda Civic GX, which runs on compressed natural gas (CNG), a fossil fuel that burns cleaner than standard gasoline.[12] Currently the standard credit for a qualified alternative fuel vehicle is $4,000. Other than the Civic GX, a number of models produced after 2004 may qualify for tax credits.[13]
Electric vehicles: Government tax credit programs are planned for electric and plug-in hybrid vehicles, but no specific models have yet been certified.[14]
Phase out credits
The 60,000-vehicle cap applies to all nameplates across an automaker's business, and as such, Lexus hybrids are accounted as part of Toyota Motor Company production, or Mercury hybrids are part of Ford Motor Company hybrid production.[2] As of mid-2010 three auto manufactures have reached the 60,000 cap, Toyota reached it in 2007, Honda in 2008, and as of April 1, 2010, all Ford hybrid vehicles are also no longer eligible for tax credits.[2]
The new qualified plug-in electric vehicle credit phases out for a PEV manufacturer over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles from that manufacturer have been sold for use in the United States. For this purpose cumulative sales are accounted after December 31, 2009. Qualifying PEVs are eligible for 50% of the credit if acquired in the first two quarters of the phase-out period, and 25% of the credit if bought in the third or fourth quarter of the phase-out period.[179] Both the Nissan Leaf electric vehicle and the Chevrolet Volt plug-in hybrid, launched in December 2010, are eligible for the maximum $7,500 tax credit.[182] The Toyota Prius Plug-in Hybrid, released in January 2012, is eligible for a $2,500 tax credit due to its smaller battery capacity of 5.2 kWh.[183] All Tesla Motors cars are eligible for the 7,500 tax credit.
2007 Toyota Camry Hybrid, $2,600 (purchased on/before 30 September 2006) / $1300 (purchased 10/01/06-03/31/07) / $650(purchased 04/01/07-09/30/07) / $0 (purchased on or after 10/01/07)[15][16]
2006–08 Toyota Highlander Hybrid 2WD or 4WD, $2,600 (purchased on/before 30 September 2006) / $1300 (purchased 10/01/06-03/31/07) / $650(purchased 04/01/07-09/30/07) / $0 (purchased on or after 10/01/07)
2005–08 Toyota Prius $3,150 (purchased on/before 30 September 2006) / $1575 (purchased 10/01/06-03/31/07) / $787.50 (purchased 04/01/07-09/30/07) / $0 (purchased on or after 10/01/07)
The main federal incentive for consumers to purchase fuel efficient vehicles is to give tax credits. States also have their own incentive programs to further incentivize fuel efficient vehicles in their own states. These incentives range from more tax credits, to discounts on insurance, to price reductions on car registration fee's. Some states offer free parking for electric vehicles, or rebates to people who install charging stations at their home or business. Almost every state has a different approach to get more people to reduce their cars carbon footprint. The states incentivize programs to get people to purchase efficient vehicles, because it reduces negative externalities such as air pollution, and increases the likelihood of lower income families to have the opportunity to purchase clean air vehicles.[17]
Arizona- taxpayers can receive a $75 tax credit to install an EV charging outlet at their own home. Some hybrids may qualify for reduced license fees. Arizona has allowed 10,000 EV and plug in hybrids to gain access to the HOV lanes, but this incentive has reached its capacity.[17]
California- The state government offers rebates through the Clean Vehicle Rebate Project (CVRP) where taxpayers who purchase an EV or plug in hybrid can receive $2,500. Restrictions on eligibility have been placed due to limited funding and high demand. California allows for an unlimited amount of EV's and Plug in Hybrids to access the states HOV lanes. A majority of Californias utility plants offer discounted rates for charging the cars on off peek hours.[17]
Colorado- The state government has incentivized consumers on purchasing EV's giving out $5,000 grants that are available instantaneously after the purchase.[17]
Connecticut- up to $3,000 can be regained via rebate with Connecticut Hydrogen and Electric Automobile Purchase Rebate (CHEAPR) program.
Delaware- The state government offers a $2,200 rebate to lease or buy an EV. They also have a $1,100 rebate to convert a combustion engine into a pure electric vehicle.[17]
Carpool lane incentives
As of July 29, 2005 Arizona Revised Statutes from the 47th session Chapters 28-2416 and 28-737 allow hybrid vehicles that have been approved by the EPA as meeting, at a minimum, the United States Environmental Protection Agency Ultralow Emission Vehicle Standard with a US$8 special plates/hybrid sticker displayed on said vehicle to use the High Occupancy Vehicle (HOV) lanes regardless of the number of passengers. Arizona has not instituted this policy, as it is awaiting clarification of the federal Hybrid HOV waiver from the EPA. On January 16, 2006, SB 1179 was introduced that would reaffirm the HOV benefit, pending federal clearance.[citation needed]
In California, hybrids with an EPA estimate of 45mpg‑US (5.2L/100km; 54mpg‑imp) or higher meet the requirements to drive in California's carpool lanes with only one passenger.[citation needed]
Virginia has also provisions for hybrid vehicles. For example, the Toyota Camry Hybrid was eligible, but must have been specially tagged by June 30, 2006 to be eligible for I-95 and I-395 exemption. Exemption for I-66 and Dulles Toll Road HOV usage continues even for registrations beyond June 30.[citation needed]
A hybrid vehicle is one that uses two or more distinct types of power, such as submarines that use diesel when surfaced and batteries when submerged. Other means to store energy include pressurized fluid in hydraulic hybrids.
The Honda Insight is a hybrid electric vehicle that is manufactured and marketed by Honda. Its first generation was a two-door, two passenger liftback (1999–2006) and in its second generation was a four-door, five passenger liftback (2009–2014). In its third generation, it became a four-door sedan (2018–2022). It was Honda's first model with Integrated Motor Assist system and the most fuel efficient gasoline-powered car available in the U.S. without plug-in capability — for the length of its production run.
The Ford Fusion Hybrid is a gasoline-electric hybrid powered version of the mid-sized Ford Fusion sedan manufactured and marketed by Ford, which had two generations. A plug-in hybrid version, the Ford Fusion Energi, was released in the U.S. in February 2013.
A green vehicle, clean vehicle, eco-friendly vehicle or environmentally friendly vehicle is a road motor vehicle that produces less harmful impacts to the environment than comparable conventional internal combustion engine vehicles running on gasoline or diesel, or one that uses certain alternative fuels. Presently, in some countries the term is used for any vehicle complying or surpassing the more stringent European emission standards, or California's zero-emissions vehicle standards, or the low-carbon fuel standards enacted in several countries.
A plug-in hybrid electric vehicle (PHEV) or simply plug-in hybrid is a type of hybrid electric vehicle equipped with a rechargeable battery pack that can be directly replenished via a charging cable plugged into an external electric power source, in addition to charging internally by its on-board internal combustion engine-powered generator. While PHEVs are predominantly passenger cars, there are also plug-in hybrid variants of sports cars, commercial vehicles, vans, utility trucks, buses, trains, motorcycles, mopeds, military vehicles and boats.
The Honda Clarity is a nameplate used by Honda on alternative fuel vehicles. It was initially used only on hydrogen fuel-cell electric vehicles such as the 2008 Honda FCX Clarity, but in 2017 the nameplate was expanded to include the battery-electric Honda Clarity Electric and the plug-in hybrid electric Honda Clarity Plug-in Hybrid, in addition to the next generation Honda Clarity Fuel Cell. Clarity production ended in August 2021 with US leases for the fuel cell variant continuing through to 2022.
Plug In America (PIA) is a 501(c)(3) non-profit educational organization that promotes and advocates the use of plug-in cars, trucks and sports utility vehicles (SUVs) powered by domestic and renewable electricity which it claims will help reduce dependence on fossil fuels, improve the global environment and reduce greenhouse gases and climate change.
A hybrid electric vehicle (HEV) is a type of hybrid vehicle that combines a conventional internal combustion engine (ICE) system with an electric propulsion system. The presence of the electric powertrain is intended to achieve either better fuel economy than a conventional vehicle or better performance. There is a variety of HEV types and the degree to which each functions as an electric vehicle (EV) also varies. The most common form of HEV is the hybrid electric car, although hybrid electric trucks, buses, boats, and aircraft also exist.
Miles per gallon gasoline equivalent is a measure of the average distance traveled per unit of energy consumed. MPGe is used by the United States Environmental Protection Agency (EPA) to compare energy consumption of alternative fuel vehicles, plug-in electric vehicles and other advanced technology vehicles with the energy consumption of conventional internal combustion vehicles rated in miles per U.S. gallon.
Toyota concept vehicles are transportation devices manufactured or designed by automobile company Toyota from 2000 to 2009. As their name suggests, these vehicles were concepts, and, as such, many were never released to dealerships. Many were developed in conjunction with other corporations such as Sony or Subaru.
A plug-in electric vehicle (PEV) is any road vehicle that can utilize an external source of electricity to store electrical energy within its onboard rechargeable battery packs, to power an electric motor and help propelling the wheels. PEV is a subset of electric vehicles, and includes all-electric/battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). Sales of the first series production plug-in electric vehicles began in December 2008 with the introduction of the plug-in hybrid BYD F3DM, and then with the all-electric Mitsubishi i-MiEV in July 2009, but global retail sales only gained traction after the introduction of the mass production all-electric Nissan Leaf and the plug-in hybrid Chevrolet Volt in December 2010.
The adoption of plug-in electric vehicles in the United States is supported by the American federal government, and several states and local governments.
Hybrid taxi or hybrid electric taxi is a taxicab service provided with a hybrid electric car (HEV), which combines a conventional internal combustion engine propulsion system with an electric propulsion system.
The fleet of hybrid electric vehicles in the United States, with 8.5 million units sold through December 2023, is the second largest in the world after Japan. American sales of hybrid electric vehicles represented about 36% of the global stock of hybrids sold worldwide through April 2016.
Government incentives for plug-in electric vehicles have been established around the world to support policy-driven adoption of plug-in electric vehicles. These incentives mainly take the form of purchase rebates, tax exemptions and tax credits, and additional perks that range from access to bus lanes to waivers on fees. The amount of the financial incentives may depend on vehicle battery size or all-electric range. Often hybrid electric vehicles are included. Some countries extend the benefits to fuel cell vehicles, and electric vehicle conversions.
The adoption of plug-in electric vehicles in the France is actively supported by the French government through a bonus–malus system through which provides subsidies towards the purchase of all-electric vehicles and plug-in hybrids with low CO2 emissions. The government also provides non-monetary incentives; subsidies for the deployment of charging infrastructure; and long term regulations with specific targets. Additionally, France passed a law in December 2019 to phase out sales of cars that burn fossil fuels by 2040.
The adoption of plug-in electric vehicles in the Netherlands is actively supported by the Dutch government through the exemption of the registration fee and road taxes. These purchase incentives have been adjusted over time. Considering the potential of plug-in electric vehicles in the country due to its relative small size and geography, the Dutch government set a target of 15,000 to 20,000 electric vehicles with three or more wheels on the roads in 2015; 200,000 vehicles in 2020; and 1 million vehicles in 2025. The first two targets were achieved two years earlier than planned.
The fleet of light-duty plug-in electric vehicles in Japan totaled just over 300,000 highway legal plug-in electric vehicles in circulation at the end of 2020, consisting of 156,381 all-electric passenger cars, 136,700 plug-in hybrids, and 9,904 light-commercial vehicles.
The adoption of plug-in electric vehicles in Germany is actively supported by the German Federal Government. Under its National Platform for Electric Mobility, Chancellor Angela Merkel set an initial goal in 2010 to deploy one million electric vehicles on German roads by 2020, which was achieved with a six months delay in July 2021. Initially, the government did not provide subsidies to promote sales of plug-in electric vehicles, however, by the end of 2014 it was recognized that the country was well behind the set sales targets. A purchase bonus scheme was approved in 2016, but premium cars were not eligible to the incentive. In order to meet the climate targets for the transport sector, in 2016 the government set the goal to have from 7 to 10 million plug-in electric cars on the road by 2030, and 1 million charging points deployed by 2030.
The stock of plug-in electric vehicles in California is the largest in the United States, and as of December 2023, cumulative plug-in car registrations in the state since 2010 totaled 1.77 million units. Between November 2016 and until 2020, China was the only country market that exceeded California in terms of cumulative plug-in electric car sales.
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