The State of Tax Credits Fueling the Shift to Alternative-Fueled Fleets

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Release date: 3/22/2019

The State of Tax Credits Fueling the Shift to Alternative-Fueled Fleets
By Patrick O’Connor, NAFA’s U.S. Legislative Counsel

The decision to purchase alternative-fueled and advance-technology fleet vehicles can often come down to available federal, state, and local incentives that make sustainability minded acquisitions fiscally justifiable.

The longstanding fuel excise tax credit of $.50 per-gallon for compressed natural gas, liquefied natural gas, propane autogas, and the $1.00 per gallon credit for biodiesel has had a significant impact on the makeup of today’s fleets across America. Congress routinely allows these year-to-year tax credits to expire only to extend them again at the last minute. At present, the fates of these credits are hanging in the balance, as they expired at the end of 2017 and have not been retroactively extended through 2018.

However, of all the tax extenders Congress is considering, one with a brighter outlook appears to be the credit for biodiesel fuel purchases, in large part due to Sen. Chuck Grassley’s (R-Iowa) sustained support for the incentive.

The future of electric vehicle incentives is also uncertain. TESLA and General Motors have now both sold their first 200,000 full electric (EV) and/or plug-in hybrid (PHEV) vehicles, in turn triggering the phase-out of the federal
tax credit which offers between $2,500 - $7,500 to consumers for vehicles from those manufacturers. Significant investments in EV development by nearly all the major auto manufacturers likely means many will hit the 200,000-vehicle limit soon. The consensus in Congress has been mixed as to what action they should take, with some such as Sen. John Barrasso (R-Wyo.) calling for an end to the tax credit and others who believe the 200,000-vehicle cap should be lifted and revised. Many states and localities are also offering incentives to EV buyers making the vehicle incentive landscape a true patchwork throughout the country.

The federal incentives, unfortunately, have not been available for purchase of medium- and heavy-duty vehicles. Federal legislation was introduced in 2018, but not enacted, that would have provided a federal tax credit for natural gas vehicles with a gross vehicle weight rating over 14,000 pounds.

The State of California has helped fill this void with the HVIP program. The Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP) and Low NOx Engine Incentives is a program created by the California Air Resources
Board (CARB) to help speed the early market introduction of clean, low-carbon hybrid and zero-emission trucks and buses. HVIP helps build the market by reducing the cost of these vehicles for truck and bus fleets that purchase and
operate the vehicles in the State of California.

HVIP vouchers are intended to reduce about half the incremental costs of purchasing hybrid and zero-emission medium-duty and heavy-duty trucks and buses. Fleets purchase vehicles immediately and will meaningfully increase the
production of these vehicles.