- Key provisions of the IRA designed to cut greenhouse gases were repealed in the House Republican bill to extend the debt ceiling—HR 2811, the Limit, Save, Grow Act of 2023.
- Critical to the EV auto industry, HR 2811 would strip out advanced manufacturing tax credits of the IRA.
- One report quotes an auto industry expert who estimates that one of the credits set to be eliminated would have amounted to a sizable $35 per kilowatt-hour for battery makers.
Negotiations to raise the debt ceiling—before the federal government begins to default on its bills—could gut key parts of the Inflation Reduction Act’s clean vehicle provisions.
Treasury Secretary Janet Yellen says some bills could go past due by next Thursday, June 1, potentially cutting off Social Security payments and veterans’ benefits while dinging the federal government’s otherwise sterling credit rating.
Biggest sticking points in the negotiations between the Biden administration and House Speaker Kevin McCarthy (R-CA), according to The Hill, are budget caps, defense vs. non-defense spending, work requirements for federal assistance programs, and a timeline for how far ahead the debt ceiling would be extended.
But key provisions of the IRA designed to cut greenhouse gases were repealed in the House Republican bill to extend the debt ceiling—HR 2811, the Limit, Save, Grow Act of 2023. Republicans passed the bill along party lines 217-215 in late April, with five GOP members voting “present.”
In getting to that wafer-thin margin, McCarthy restored biofuel tax credits that were repealed in the original draft, securing the votes of 10 congressmembers from corn-producing farm states. HR 2811 stalled in the Democratic-led Senate.
Neither the White House nor McCarthy’s negotiators are giving any details on cuts that have been agreed to and those still in play. But unlike ethanol, key provisions of the IRA’s greenhouse gas-cutting programs were not removed from HR 2811.
Critical to the EV auto industry, HR 2811 would strip out advanced manufacturing tax credits of the IRA. These credits are split into two categories:
•Section 48C, which gives battery manufacturers tax credits for certain wages paid and apprenticeships created to “produce or recycle certain energy properties.”
•Section 45X, which “pertains to advanced manufacturing production and sale of certain energy components… such as solar, wind, qualifying batteries, and some 50 critical minerals,” according to The Wall Street Journal.
The latter credit, Section 45X, is crucial to legacy automakers like General Motors and Ford, as well as Tesla and its EV-only upstart competitors.
A report by Halter Ferguson Financial quotes industry cost and efficiency expert Sandy Munro, of Munro & Associates, estimating that Section 45X would give battery makers a tax credit of $35 per kilowatt-hour. Tesla produces its own battery cells for less than $100 per kilowatt-hour, according to Munro & Associates, so if the tax credit survives debt ceiling talks it would make EVs that much more affordable.
Unless it gets the axe, Section 45X could be an even bigger boon for General Motors, which reported in its first-quarter 2023 financial results that Ultium battery cells will cost as little as $87 per kWh by 2025. If the credit remains, it means a decrease of 40% in the cost of a battery for GM.
Also under HR 2811’s knife:
• The tax credit for qualified commercial clean vehicles—an incentive to switch to EV delivery vans and trucks that Ford and GM were touting as a key step toward ending dependency on internal-combustion engines.
• The IRA’s consumer tax credit of up to $3500 for used plug-in hybrid vehicles and fuel-cell vehicles.
The oil industry would be OK with cutting these tax credits. An August 11, 2022, letter from the American Petroleum Institute to then-Speaker Nancy Pelosi (D-CA) and McCarthy, who was minority leader, says “We share the goal of addressing climate change as evidenced in the policies we support and in the actions that we take every day. However, the considerable tax increases and new government spending in the IRA amount to the wrong policies at the wrong time.”
But the API’s lobbying strategy is less about trying to kill the EV provisions and more about supplementing the growing EV market with greater oil reserves at cheaper prices: “Finally, the IRA fails to address permitting reform, which is desperately needed and is essential to effectively deliver affordable, reliable energy to consumers in a growing economy.”
“Permitting reform” refers to cutting time and red tape for new drilling and exploration permits, as championed last year by Sen. Joe Manchin III (D-WV), and supported by the Biden administration, according to Reuters. Now the greatest proponent of permitting reform is Rep. Garret Graves (R-LA), McCarthy’s lead negotiator with the White House on the debt limit.
[Graves was trustee in 2010 on the Deepwater Horizon settlement for the Gulf Oil spill, then chairman of the Louisiana coastal board overseeing construction of levees and negotiating permits for land restoration before his first House term in 2015, according to National Public Radio.]
We contacted Graves’ Washington office to ask whether EV and manufacturing tax credits are in-play in the debt limit negotiations. We have not heard back.
If you are shopping for a battery-electric vehicle, how important are federal tax credits in your purchase decision? Please comment below.
As a kid growing up in Metro Milwaukee, Todd Lassa impressed childhood friends with his ability to identify cars on the street by year, make, and model. But when American automakers put an end to yearly sheetmetal changes, Lassa turned his attention toward underpowered British sports cars with built-in oil leaks. After a varied early journalism career, he joined Autoweek, then worked in Motor Trend’s and Automobile’s Detroit bureaus, before escaping for Mountain Maryland with his wife, three dogs, three sports cars (only one of them British), and three bicycles. Lassa is founding editor of thehustings.news, which has nothing to do with cars.
