Energy

On Capitol Hill, a 180-degree turn of events for climate, EV policy

For the past year and a half, the Build Back Better agenda has been on a roller-coaster ride — and I am not talking about those easygoing kids’ rides either. I’m talking about the rides that spin you upside down and twirl you around, only to flatten out, giving the impression it’s over, and then take you for another thrilling set of twists and turns. 

Here is a perfect example of what I mean. Last week, I reached out to Joe Britton, executive director of the Zero Emission Transportation Association (ZETA), a federal coalition focused on advocating for 100 percent electric vehicle (EV) sales by 2030 with corporate members including Tesla, Rivian, ABB and EVgo. I wanted to speak with Britton, given the news at the time out of Capitol Hill that the Build Back Better bill was completely dead in the water again and all that remained was a health care spending deal. ZETA has been at the frontlines of all things federal EV policy since launching in late 2020, so there’s no one better to speak to than Britton and his team. Then just like a roller coaster, prior to my interview, news broke that Build Back Better was not fully dead, and Sen. Joe Manchin, who has held up much of the progress on passing a meaningful bill, supports moving forward on some version of a bill after negotiations with Sen. Chuck Schumer. Oh, and now the bill was no longer called the Build Back Better Act, but instead is The Inflation Reduction Act of 2022.

If you take Manchin at his word, then apparently he was never really out of the deal, despite media reports to the contrary. “Remember when I told you I didn’t walk away? I never walked away. I’ve never walked away from anything,” Manchin said in an interview with Punchbowl News after announcing a deal has been struck on the new bill. 

In this piece, I don’t plan to recap the well-documented twists and turns of Build Back Better. Instead, I want to look ahead and help make sense of what transpired these past few days because this may be the planet’s best shot at meaningful climate policy passing in the U.S. Even as I write this, I would be lying if I said I am not holding my breath on whether Congress will be able to pass it. 

Specifically for climate, the bill sets aside $369 billion for energy security and climate change compared with the previously allocated $550 billion.

While we are nowhere close to what President Joe Biden initially proposed in 2021, passing this legislation will put the U.S. on a path to roughly 40 percent emissions reduction by 2030, short of the original U.S. goal of 50 percent by 2030 that is needed to meet net zero by 2050 — but a whole heck of a lot better than nothing at all. 

  • As it stands, the bill will bring in $739 billion and will invest $433 billion in energy security and climate change along with an Affordable Care Act extension. 
  • The previous version of the bill passed by the House last year included a total $1.75 trillion. 
  • Specifically for climate, the bill sets aside $369 billion for energy security and climate change compared with the previously allocated $550 billion
  • The bill includes several incentives for EVs, including maintaining the $7,500 purchase incentive but removing the tax credit cap after automakers hit 200,000 EVs sold. Removing the cap would make GM and Tesla vehicles once again eligible. Additionally, the incentive moves to the point of sale instead of applying as a federal tax credit. 
  • A few firsts: The legislation also includes $4,000 for used EVs and up to $40,000 for commercial trucks that weigh more than 14,000 pounds. 

For those interested, here is the one-pager on all the various spending breakdowns and the full text for all my fellow policy nerds. Also, make sure to check out GreenBiz’s recent piece on the The Inflation Reduction Act of 2022 and its impact on climate tech by our own Leah Garden. 

Given my incredible conversation with Britton, and how helpful it was to dive deeper into the legislation, we have decided to publish the full interview, edited for length and clarity:

Vartan Badalian: When I first reached out a couple of weeks ago to schedule this interview, we were in a much different place compared to now. A lot has transpired over these last couple of days. It is like a 180-degree turn on Capitol Hill. We first thought all hope for meaningful federal climate policy was lost after Sen. Joe Manchin signaled he would not support any bill that focused on climate. It now appears climate is back in, and Build Back Better is called The Inflation Reduction Act of 2022. Please walk us through what transpired over these two weeks to get us here. 

Joe Britton: Well, there is the inside baseball kind of answer that [Senate Majority Leader Chuck] Schumer felt like he was clear that the deadline was August, and Manchin felt like the deadline was Sept. 30. So they had a little bit of a conflict on, was there time to push this past August or not. So there was a little bit of just timing. Manchin is the energy chairman, so he recognizes that climate change is worth addressing. … So I don’t think he intended necessarily to kill the climate provisions in the way that those conversations had appeared. I think it was basically a recognition that, all right, we’re disagreeing over dates, and that is not a justification for giving up on climate change and emissions reduction. So they just continued the conversations and figured out a way to agree on things that were under consideration. 

Photo of Joe Britton, executive director of ZETA, leaning on a balcony

Badalian: From an EV and climate perspective, what is and is not in this bill compared to the previous version? What should consumers and company fleets be aware of? I know there is a slight change to the EV tax credit compared to before, correct? 

Britton: There is a lot [different]; they are different bills. If you stack this bill up against previous aspirations for Build Back Better, you are sort of disappointed in certain areas, certainly. But on the EV side, the new EV credit is probably the biggest change. So in the House bill, they had the $7,500 base credit for EVs if you purchased a new vehicle, but they also had an extra $500 for domestic content, and then another $4,500 if it was manufactured with union labor. We kind of identified that the union adder was going to be a problem for many political reasons, so it came out. So it is now the $7,500 base credit. The thing that is most interesting about the new credit is that there is embedded in there, maybe not direct, but certainly indirect industrial policy. So for half of the credit, you [the automotive company] need to make pretty serious strides on reshoring critical minerals. So $3,750 of the $7,500 is dependent on the next 2½ years, for the automotive company to reshore critical mineral supply chains and pull them out of China. That can be in North America and also allies that we [the U.S.] have free trade agreements with. Like Australia, Chile, and others. But that is going to be difficult to do. You cannot just take the vehicles in the supply chains that we have today and assume eligibility, I think there will be a lot of work to reshore minerals. For the other half, $3,750, you [the automotive company] have to have your battery components not sourced from China. And so again, that is going to be a challenge, it will force manufacturers to reach and do things a little differently. Thankfully, we have done a lot on batteries. 

We have 700-gigawatt hours of battery manufacturing announced in the U.S. now, so certainly there are huge incentives put in place to reshore more of that for the future. But the bill also does not just say, “Here are some new targets,” and leaves it up to manufacturers to just figure it out. It also puts a lot of resources behind helping manufacturers do that. So there is $10 billion in battery and advanced manufacturing to help manufacturers reshore, there is $20 billion in loan authority, there is $2 billion for automotive facility retooling — so it is helping to support manufacturers to achieve these metrics. So the way I have been describing it is that they are tough metrics: They are going to require some real effort on the supply chain side, and it will take some time to do. But if we get it right, not only will we be making eligible vehicles and accelerating transportation electrification, but we will be creating jobs for minerals, batteries, components, parts and everything else. So, it is an incentive that has industrial policy baked in it. 

Badalian: So it changes the current incentive for the $7,500 where it now puts more onus on the automotive company to make themselves eligible, whereas before the only major onus was whether the company had sold 200,000 EVs or not to be eligible. 

Britton: So while it requires some difficult supply chain management and manufacturing changes to reshore and pull out of China, many of these manufacturers had already hit the cap [200,000 consumer sale cap]. Without this bill, they had zero chance of offering a consumer incentive period. So that cap is now gone under this bill, and instead of the cap, it makes contingent your eligibility based on the metrics discussed. So, against a baseline where you [the automotive company] had no credit, having a credit that, albeit is conditional and may take some work, I think folks are going to see and endeavor to make the $7,500 credit available to their consumers. And so it will create some manufacturing and critical mineral supply chain changes, but for good reason, and hopefully, those changes will be good for the American worker too.

Badalian: And there is also a component for fleets right? So there is a truck incentive as well that is pretty sizable — up to $40,000. 

Britton: Yeah, it is a 30 percent investment tax credit, that one is big and that one is new. … The other is the used EV credit, which I think is a really big game-changer. 70 percent of Americans are not in the market for a new car. And so this will now make a used EV credit available at $4,000 to folks that are looking to purchase a used car. Previously we had left out 70 percent of the market, and now those people are eligible for a used EV credit, so that is a big deal. 

The other one that is a really big deal is a $35 per-kilowatt-hour battery production tax credit. So, if you take, for example, a 100-kilowatt-hour battery, Tesla Model X and some others meet that, there is a $3,500 value that goes to the manufacturer to produce that battery in the U.S. So if you think about that $3,500 plus the $7,500 vehicle consumer incentive if you are doing this work in the U.S., and you can secure your supply chains, pull them out of China, you might have $7,500 for the consumer and $3,500 for the manufacturer. And all of a sudden there is [$10,000] or $11,000 in value to reach and surpass price parity with gas-powered vehicles. So that is a big, big change. 

Badalian: This is not the only thing that will positively impact the automotive industry, correct? The Senate recently passed the CHIPs+ Act, which will increase the production of critical semiconductor chips in short supply (which is causing supply chain delays). Walk us through the importance of this bill for the EV industry. 

Britton: So this is interesting… one of the biggest chokepoints we face in supply chain constraints has been the chip shortage, so being able to invest $50-plus billion in chip manufacturing in the U.S. will again restore some of those manufacturing jobs and capabilities, … Also, if we didn’t have a domestic supply chain for chips, we may have fallen prey to some of the manufacturing bases in Asia that were just not gonna make them available. So it was a real vulnerability for us [the U.S.]. So that investment will boost volume and supply domestically, but ideally, do it at a price competitive point. So that [CHIPS+ Act] combined with this bill [The Inflation Reduction Act of 2022] is going to be an enormous accelerant for transportation electrification. 

The other thing that we didn’t mention going back to the reconciliation bill [The Inflation Reduction Act of 2022], that we have been working on for months and months is the U.S. Postal Service electrification. Previously, Postmaster [Louis] DeJoy came out and said 10 percent of the fleet might be electric under his plan. We spent a lot of time and I testified before Congress, challenging the assumptions that they use. [After all the advocacy, the U.S. Postal Service] recently committed 40 percent of the fleet to be electric. So we got them to quadruple their commitment. 

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But there is also $3 billion in this bill to further electrify the U.S. Postal Service fleet. So that’s a big deal. One of the estimates was that it was going to cost $6 billion to electrify the Postal Service fleet. So if you think about the 40 percent they’ve already committed to plus another $3 billion, you can envision getting the 90 to 100 percent fleet electrification for the Postal Service. The other thing is that they are also sending $15 million to the postal inspector general to conduct oversight on the postmaster, to ensure that they are doing this in the right way.

Badalian: What do you see as the timeline for moving The Inflation Reduction Act of 2022 forward? 

Britton: Well, Plan A is that they start voting  [Wednesday or Thursday]. And it then goes to the president’s desk next weekend. So that is Plan A. But, Congress and politics are not without twists and turns. So it is not a slam dunk. And there will be a lot of work to do between now and then. But that is the goal. 

Badalian: How soon can we expect the revived EV incentive to be ready and available to consumers and companies? 

Britton: Well, there is an implementation period, so I think Treasury and IRS probably have to put out some guidance. So there will be some different junctures. But what I would recommend is, come next weekend, we will have some finality on the policy and we have gone through the amendment process. And then ZETA will be putting a lot of work into public awareness, working fleet operators, and those that might want to buy a commercial heavy-duty EV and certainly a consumer-facing vehicle. So we will have the material and the content to know where the policy lands, and then folks should start to see how and where they might be eligible.

Badalian: Beyond The Inflation Reduction Act of 2022, what more does the U.S. need federally to achieve 100 percent EV sales by 2030, or are we now on track? 

Britton: So I think it is a three-pronged approach. We get in place the right federal policies, which this bill is directionally a huge accelerant. … So that is the federal policy. No. 2 is the manufacturers produce product and segment offerings that more and more Americans can see working for their families, which they are doing. The third is a huge public affairs campaign. Not every American has the time or bandwidth to unpack the credits and eligibility. … There needs to be a huge public affairs campaign aimed at bringing to communities all across America the benefits of electrification. Go into those families and say that electrification is good for you, it is good for your family, you will save money at the pump, and you will be catalyzing domestic manufacturing and jobs in your community.

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