Alternative Fuel and Advanced Vehicle Technology Incentives: A Summary of Federal Programs
Released: 2019-02-26T00:00:00

Introduction

A range of federal incentives supports the development and deployment of alternatives to conventional fuels and engines in transportation. These incentives include tax deductions and credits for vehicle purchases and the installation of refueling systems, federal grants for conversion of older vehicles to newer technologies, mandates for the use of biofuels, and incentives for manufacturers to produce alternative fuel vehicles. Some of these incentives have expired in recent years when their authorizations expired.

Many of the policy choices presented for alternative fuel and advanced vehicle technologies originated as a response to the nation's interest in reducing petroleum imports, a goal first articulated at the time of the two oil embargoes imposed by the Organization of Petroleum Exporting Countries (OPEC) in the 1970s. While President Richard Nixon is often cited as the first President to call for "energy independence," successive Presidents and Congresses have made efforts to reduce petroleum import dependence as well.

As shown in Figure 1 , since peaking in 2005, net U.S. oil imports have fallen by 70%. Factors in this reversal include the last recession, which reduced domestic demand, followed by a rise in the supply of U.S. oil and oil alternatives due to increased private sector investment and federal incentives, some of which are cited in this report. In addition, the United States has become a net exporter of petroleum products (while it remains a net importer of crude oil). With declining U.S. import dependence, reliance on petroleum and petroleum products may be less of a factor in promoting alternative fuels and alternative fuel vehicles in the future.

In addition to concerns over petroleum import dependence, other factors also have driven policy on alternative fuels and advanced vehicle technologies. Federal incentives do not reflect a single, comprehensive strategy but rather an aggregative approach to a range of discrete public policy issues, including improving environmental quality, expanding domestic manufacturing, and promoting agriculture and rural development.

Factors Behind Alternative Fuels and Technologies Incentives

While a reliance on foreign sources of petroleum was an overriding concern for much of the past 40 years, other factors, such as rural development, promotion of domestic manufacturing, and environmental concerns, have also shaped congressional interest in alternative fuels and technologies. A variety of programs affecting the development and commercialization of alternative fuels and technologies have been proposed and enacted, each with its own benefits and drawbacks. (This report does not evaluate the effectiveness of alternative fuel programs and incentives.) Alternative fuels programs can be generally classified into six categories: expanding domestic ethanol production; establishing other alternative fuels; encouraging the purchase of nonpetroleum vehicles; reducing fuel consumption and greenhouse gas emissions; supporting U.S. vehicle manufacturing; and funding U.S. highways.

Developing Domestic Ethanol Production

Ethanol has been seen as a homegrown alternative to imported oil. A number of programs were put in place to encourage its domestic development (instead of importing from other ethanol producers, such as Brazil). To spur establishment of this domestic industry, Congress has enacted a number of laws, which are beneficial to states that have a large concentration of corn growers (corn being the raw material feedstock in most U.S. ethanol). Many of the incentives for ethanol production have been included in farm-related legislation and appropriations acts and hence have been administered by the U.S. Department of Agriculture (USDA), or in tax provisions administered by the Internal Revenue Service (IRS). The volumetric ethanol excise tax credit (VEETC) provided a tax credit to gasoline suppliers who blended ethanol with gasoline. The small ethanol producer tax credit provided a limited additional credit for small ethanol producers. Both credits expired at the end of 2011. Since 2005, petroleum refiners and importers have been required to supply biofuels as a share of their gasoline and diesel supply. This mandate, the Renewable Fuel Standard (RFS), has been an impetus for expanded production and use of ethanol and other biofuels.

Establishing Other New Alternative Fuels

In addition to ethanol, Congress has sought to spur development of other alternative fuels, such as biodiesel, cellulosic biofuel, hydrogen, liquefied petroleum gas (LPG), compressed natural gas (CNG), and liquefied natural gas (LNG). Some of these fuels have been supported through tax credits (such as the biodiesel tax credit), federal mandates (mainly the RFS), and R&D programs (such as the Biomass Research and Development Initiative, which provides grants for new technologies leading to the commercialization of biofuels).

Encouraging the Purchase of Nonpetroleum Vehicles

Congress has enacted laws which seek to boost consumer adoption by providing tax credits for the purchase of some vehicles that consume far less petroleum than conventional vehicles, or that do not consume petroleum at all. These tax credit programs generally are limited in duration as a way to encourage early adopters to take a risk on new kinds of vehicles. The proponents contend that once a significant number of such new cars and trucks are on the road, additional buyers would be attracted to them, the increased volume would result in lower prices, and the tax credits would no longer be needed. Currently, a credit is available for the purchase of plug-in electric vehicles. Expired credits include incentives for hybrid vehicles, fuel cell vehicles, advanced lean burn technology vehicles, and certain alternative fuel vehicles. Congress has also enacted tax credits to spur the expansion of infrastructure to fuel such vehicles, although these credits have likewise expired.

Reducing Fuel Consumption and Vehicle Emissions

Several agencies, including the Environmental Protection Agency (EPA) and the Department of Transportation (DOT), have been mandated by statute to address concerns over fuel consumption and vehicle emissions through programs for alternative fuels. The most significant and long-standing program to reduce vehicle fuel consumption is the Corporate Average Fuel Economy (CAFE) program administered by DOT. Under CAFE, each manufacturer's fleet must meet specific miles-per-gallon standards for passenger vehicles and light trucks. If a manufacturer fails to do so, it is subject to financial penalties. Manufacturers can accrue credits toward meeting CAFE standards for the production and sale of certain types of alternative fuel vehicles. A joint rulemaking process between DOT and EPA links future CAFE standards with greenhouse gas (GHG) standards promulgated under EPA's Clean Air Act authority. DOT also established the Congestion Mitigation and Air Quality Improvement Program (CMAQ) to fund programs that intended to reduce emissions in urban areas that exceed certain air quality standards. At EPA, the Diesel Emission Reduction Act (DERA) was implemented with a goal of reducing diesel emissions by funding and implementing new technologies. In addition, EPA's RFS mandates the use of renewable fuels for transportation. Under the RFS, some classes of biofuels must achieve GHG emission reductions relative to gasoline.

Supporting U.S. Motor Vehicle Manufacturing

The Department of Energy (DOE), in partnership with U.S. automakers, federal labs, and academic institutions, has funded and overseen research and development programs on vehicle electrification for decades, in particular research focused on how to produce economical batteries that extend electric vehicle range. These R&D programs were supplemented in the American Recovery and Reinvestment Act (ARRA; P.L. 111-5 ) to include grants to U.S.-based companies for facilities to manufacture advanced battery systems, component manufacturers, and software designers to boost domestic production and international competitiveness. The Advanced Technology Vehicles Manufacturing (ATVM) loan program at DOE, established by the Energy Independence and Security Act of 2007 ( P.L. 110-140 ), has supported manufacturing plant investments to enable the development of technologies to reduce petroleum consumption, including the manufacture of electric and hybrid vehicles, although no new loans have been approved since 2011.

Highway Funding and Fuels Taxes

As described below (see " Motor Fuel Excise Taxes "), one of the earliest fuels-related federal programs is the motor vehicle fuels excise tax first passed in the Highway Revenue Act of 1956 to fund construction and maintenance of the interstate highway system. Originally, only gasoline and diesel were taxed, but as newer fuels became available (such as ethanol and compressed natural gas), they were added to the federal revenue program, but often at lower tax rates than gasoline or diesel. Lower tax burdens for some fuels or vehicles may effectively incentivize those choices over conventional options. However, lower tax burdens for these vehicles and fuels could compromise federal highway revenue. The vehicles responsible for lower tax revenues include traditional internal combustion engine vehicles with higher mileage per gallon as well as new technology electric and hybrid cars.

Structure and Content of the Report

The federal tax incentives and programs discussed in this report aim to support the development and deployment of alternative fuels. There is no central coordination of how these incentives interact. In general, they are independently administered by separate federal agencies, including five agencies: Department of the Treasury, DOE, DOT, EPA, and USDA.

This report focuses strictly on programs that directly support alternative fuels or advanced vehicles. It does not address more general programs (e.g., general manufacturing loans, rural development loans), or programs that have been authorized but never funded. The programs are presented by agency, starting with those that generally address the above factors, followed by those that are fuel- or technology-specific. Programs that expired or were repealed on or after December 31, 2017, are included in Appendix A , Recently Expired or Repealed Programs. Congress may explore whether to reinstate these expired programs or establish similar programs.

Appendix B contains four tables:

1. a summary of the programs discussed in the body of the report, listed by agency ( Table B-1 ); 2. a listing of programs and incentives for alternative fuels, by fuel type ( Table B-2 ); 3. a listing of programs and incentives for advanced technology vehicles, by vehicle type ( Table B-3 ); and 4. a listing of recently expired programs by agency ( Table B-4 ).

Current Federal Incentives

Department of the Treasury

Idle Reduction Equipment Tax Exemption6

Motor Fuel Excise Taxes10

Plug-In Electric Drive Vehicle Credit15

Department of Energy

Advanced Technology Vehicles Manufacturing Loan Program (ATVM)

Bioenergy Technologies Program (formerly the Biomass and Biorefinery Systems R&D Program)

Clean Cities Program

Hydrogen and Fuel Cell Technologies Program

Vehicle Technologies Program (VTP)

Department of Transportation

Congestion Mitigation and Air Quality Improvement Program

Corporate Average Fuel Economy Program Alternative Fuel Vehicle Credits

Low or No Emission Vehicle Program

Environmental Protection Agency

National Clean Diesel Campaign

Renewable Fuel Standard

Department of Agriculture19

Bioenergy Program for Advanced Biofuels20

Biomass Crop Assistance Program (BCAP; §9011)21

Biomass Research and Development (BRDI)22

Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Program (formerly the Biorefinery Assistance Program)24

Rural Energy for America Program (REAP) Grants and Loans25

Appendix A. Recently Expired or Repealed Programs

Alternative Fuel Refueling Property Credit

Alternative Motor Vehicle Credit

Biodiesel or Renewable Diesel Income Tax Credit

Biodiesel or Renewable Diesel Mixture Tax Credit

Incentives for Alternative Fuel and Alternative Fuel Mixtures

Plug-In Electric Vehicle Credit (Two- or Three-Wheeled)

Repowering Assistance Program

Second Generation Biofuel Producer Credit (previously the Credit for Production of Cellulosic and Algae-Based Biofuel)

Small Agri-Biodiesel Producer Credit

Special Depreciation Allowance for Second Generation (Cellulosic and Algae-Based) Biofuel Plant Property

Appendix B. Summary Tables

Appendix B contains four tables

Table B-1 provides a summary of the programs discussed in the body of the report, listed by agency; Table B-2 lists programs and incentives for alternative fuels, by fuel type; Table B-3 lists programs and incentives for advanced technology vehicles, by vehicle type; and Table B-4 lists programs by agency that have expired or were repealed since December 31, 2017.