Inflation Reduction Act Incentives for clean energy vehicles

In brief

The Inflation Reduction Act of 2022, P.L. 117-169 (IRA) (the Act), enacted August 16, includes major extensions, expansions, and enhancements of credits intended to support the widespread adoption of electric vehicles for both individual and commercial use, as well as incentivizing efforts to ‘on-shore’ parts of the electric vehicle manufacturing supply chain. These incentives include:

• Section 30C alternative fuel vehicle refueling property credit
• Section 30D clean vehicle credit
• Section 25E used clean vehicle credit
• Section 45W credit for qualified commercial clean vehicles
• Section 45X advanced manufacturing production credit
• Section 48C advanced energy project credit.

The Act structures many new and existing clean-energy and energy-efficiency tax incentives as two-tiered incentives with a ‘base rate’ and a ‘bonus rate.’ The bonus rate equals five times the base rate and applies to projects that meet certain wage and apprenticeship requirements. A taxpayer must satisfy both requirements to receive the bonus credit rate; otherwise, the taxpayer may claim the relevant credit at the base rate. Note: This two-tier structure does not apply to the Section 25E, 30D, or 45W credits.

Some of the credits in the Act also include bonus rates based on the domestic content of the property to which the credit would apply.

These incentives are intended to encourage additional investment in lower-carbon technologies, in light of climate-related goals adopted by the Biden Administration for accelerating decarbonization of the US economy, including a goal to reduce emissions by 50% by 2030, against a 2005 baseline.