How Will the Inflation Reduction Act Affect EV Charging?
This summer, Congress and the Biden administration worked together to pass what may become one of their signature pieces of legislation.
As central as the impact of inflation is in America right now, the Inflation Reduction Act (IRA) aims to do much more than its name conveys. The law targets climate, health care and tax issues in a unique combination of initiatives designed to lower costs and bring down the deficit over the next decade. Its climate investments are particularly significant, and they’re likely to push America several steps closer to an electric vehicle future.
The IRA will lead not only to increased production of EVs but to an expanded charging infrastructure as well. Here’s what the Inflation Reduction Act means for EVs and EV charging in America.
What Is the Inflation Reduction Act?
President Biden signed the IRA into law on August 16, 2022. On its face, the $739 billion legislation package aims to reduce the impact of inflation by lowering energy and health care costs for Americans and bringing down the federal deficit over the next 10 years. According to the Congressional Budget Office’s analysis, the IRA will reduce the deficit by $238 billion by 2031.
The law aims to expand Medicare benefits, cut household energy costs by $500 to $1,000 per year, and save the average enrollee in the Affordable Care Act (ACA) insurance marketplace $800 per year. It also allows Medicare to negotiate prescription drug prices and raises taxes on some corporations.
What Does the IRA Mean for the Climate and EVs?
Where the IRA is most ambitious, though, is in its climate initiatives.
“The Inflation Reduction Act (IRA) is the biggest climate investment in U.S. history,” says James Ellis, director of energy and utilities at EV Connect. “The law has over $370 billion in climate and clean-energy investments, and it will put the U.S. on a path to roughly 40% emissions reduction by 2030.”
These investments come in a few key areas:
Clean manufacturing investments: The IRA invests $60 billion in clean manufacturing jobs.
Extended and expanded EV tax credits: The Clean Vehicle Credit of up to $7,500 on qualifying clean vehicles, which previously expired on Dec. 31, 2021, has been extended to 2032. It also removes the manufacturer sales cap, meaning that consumers can again take advantage of the credit on manufacturers, such as Tesla and GM, that had previously reached their sales limits.
Used EV tax credit: Consumers can now get tax credits for up to $4,000 or 30% of the cost of a used EV that’s at least two years old and not purchased for resale.
Point-of-sale credits: These tax credits are now accessible at the point of purchase, meaning you don’t have to wait until tax time to get the money back.
Extended and expanded tax credits for EV chargers: Besides credits for EV purchases, the law also restores expired tax credits for installing EV chargers in homes and businesses. As before, this credit is good for up to 30% of the costs of EV charging equipment. For businesses in certain designated areas, however, the limit is expanded from $30,000 to $100,000 per item beginning in 2023.
Taken together, these investments will have a sizable impact on climate and EV accessibility over the next decade. These initiatives also include some unique limitations designed to expand EV and EV charging access to low-income and rural communities, which we’ll explore in greater depth below.
3 Ways the IRA Will Affect EV Charging
The Inflation Reduction Act will have a significant impact on the EV charging infrastructure in the U.S. Its provisions will ultimately result in more chargers in more areas of the country, thanks not only to its direct investment in EV charger credits but also in expanding EV ownership. Here are three specific ways the new law will affect EV charging in the U.S.
Drive EV Production and Ownership
The IRA clearly aims to aggressively expand EV ownership. By extending the tax credit, reopening it to include previously capped manufacturers, and extending it to include used clean vehicles, the law will make it easier for anyone in the U.S. to buy an electric vehicle. The fact that these credits can be taken at the point of sale, rather than only at tax time, makes them even more accessible.
These investments are specifically targeted toward middle-class Americans, too. The new-vehicle credit only applies to vehicles with MSRPs of $55,000 or less ($80,00 for vans and pickup trucks), and it’s limited to taxpayers making no more than $150,000 ($225,00 for heads of household and $300,000 for married couples filing jointly).
“The EV tax credits will increase both production and sales and drive acceptance in the U.S.,” Ellis says.
By expanding and focusing the credits at the same time, the IRA will help manufacturers ramp up production of their more affordable models, putting more EVs on the road and increasing the need for charging infrastructure in the long run.
Expand Charging Station Access
The IRA also directly addresses the need for more charging infrastructure. Reviving the 30% credit for installing EV chargers and related equipment, such as solar panels to power charging, reflects a major investment in charging infrastructure. For businesses, in particular, the potential of gaining up to $100,000 per item in charging equipment credits is substantial.
However, it’s worth noting that these credits come with some new limitations. Because the IRA is focused on expanding charging access to low-income and rural communities, the credits only apply to installations in nonurban areas or communities that meet certain limits for average income. This is a win for equitable charging access, but it could present some barriers to quickly growing the nation’s charging network.
“We had hoped that all sites would get a base level tax credit, but that low-income and nonurban census tracts would get an increased tax credit,” Ellis says. “Having a base credit for all charging stations/sites would have increased EV charging station eligibility and helped to expand the charging infrastructure in highly populated urban communities, not to mention make implementation much less complex.”
These credits will undoubtedly result in a much larger EV charging network. But interested site hosts and charging station developers will need to factor these limitations into their production plans.
Stabilize the U.S. EV Market
The Inflation Reduction Act also aims to stabilize the country’s EV market by tying more of its production to the U.S. and its global allies.
Most importantly, the tax credits for EV purchases only apply to vehicles assembled in North America. That leaves about 30 eligible models right now, but it’s designed to incentivize new production goals for U.S. automakers.
The law also includes additional money for manufacturers that reach certain targets for materials sourcing. For instance, there is a threshold for extracting or processing critical minerals in countries with which the U.S. has a free trade agreement. Similarly, manufacturers can access more funds if they use enough materials recycled in North America or build batteries with a certain proportion of components made or assembled on the continent.
“Overall, these clean transportation provisions will help bolster the domestic EV market, help millions of Americans benefit from clean transportation, increase economic competitiveness, and create homegrown jobs,” Ellis says.
The resulting strength of the U.S. EV market will spread to the charging market as well.
A Big Win for EVs and the Clean Energy Movement
It’s difficult to overstate the impact of this new law. While it may take time for EV and EV charging production to fully feel the IRA’s effects, it will rapidly accelerate the EV movement in the U.S. over the next decade.
“This law is a huge win for the electric vehicle movement and domestically produced electricity as a clean transportation fuel of choice,” Ellis says. “Transportation is the country’s largest source of greenhouse gas emissions, and the IRA’s new EV incentives can accelerate the shift away from combustion vehicles and the more harmful mobile source emissions.”
Ultimately, that’s also a huge win for EV and EV charging manufacturers.
Sources
Committee for a Responsible Federal Budget (CRFB) - What's in the Inflation Reduction Act?
U.S. Senate Democrats - Summary: The Inflation Reduction Act of 2022
Kiplinger - EV Tax Credits Are Changing: What’s Ahead
Foley & Lardner LLP - EV Charging Station Tax Credits Are Back: Inflation Reduction Act Extension of the Section 30C Tax Credit