Congress-Commissioned Study Recommends PEV Tax Credit Become Point Of Sale Rebate

A comprehensive study commissioned by Congress surveying adoption and growth of the plug-in electrified vehicle (PEV) market recommends the federal tax credit become a point-of-sale rebate.

This recommendation has been politically dead on arrival as endorsed by President Barack Obama for the past four years or more, but the 205-page exhaustive and throughly vetted non-partisan study by the National Research Council adds its voice(s) to the idea.

SEE ALSO: Does The $7,500 Plug-In Car Tax Credit Need Reform?

Whether this study touching on myriad aspects of PEV acceptance is heeded by our nation’s legislators is anyone’s guess, but they asked for U.S. taxpayer dollars to fund it, offer recommendations, and that it does:

“Given the research on fiscal incentives and HEVs [hybrid electric vehicles], the effectiveness of the federal income tax credit to motivate consumers to purchase PEVs would be enhanced by converting it into a rebate at the point of sale,” says the first of several findings of the study regarding the tax credit picture in America.

Precedent was set with lower-dollar-amount incentives for HEVs. Initial costs are higher for PEVs, and incentives are just one recommendation among many to educate consumers, stimulate the market.

Precedent was set with lower-dollar-amount incentives for HEVs. Initial costs are higher for PEVs, and incentives are just one recommendation among many to educate consumers, stimulate the market.

The study, titled, “Overcoming Barriers to Deployment of Plug-in Electric Vehicles” further points out a recent survey found the present state of incentives between federal and state and local level leaves many consumers unaware.

“However, a recent study found that 94.5 percent of survey respondents (adult drivers from the general public in 21 major U.S. cities) were not aware of PEV incentives and suggests that the effectiveness of the PEV credits could be enhanced through greater consumer awareness and education (Krause et al. 2013),” says the study.

This is the case, observes the study despite the fact “overall, that literature suggests that financial incentives do motivate consumers to purchase more fuel-efficient vehicles.”

So, incentives work, but they are only working so well in the U.S. says the study commissioned by Congress.

At the same time, it resists deeper level recommendations because “there appears, however, to be a lack of research to indicate which incentives might be the most effective at encouraging PEV deployment.”

Held out as case examples are well-published effective programs stimulating Norway and the Netherlands, as well as an “interesting” incentive policy in Japan offered by the Clean Energy Vehicle Promotion Program.

It [Japan’s program] is notable because it has a clear sunset, the rebate level declines every year on the basis of a preset formula, and the rebate amount financed by the government depends on whether vehicle manufacturers meet a preset annual price target (see Figure 7-1). The administering agency, the Ministry of Economy, Trade and Industry (METI 2013) calculates an annual price target by assuming a linear decline between a base price in 2012 and a long-term target price in 2016. To encourage vehicle manufacturers to reduce their sales prices every year, the government provides 100 percent of the rebate if the manufacturer meets the annual target price but subsidizes only about 67 percent of the rebate if the manufacturer exceeds the annual price target.

 

The study however says firm conclusions based on other countries with unique culture and politics aren’t easily drawn but clearly incentives work, and it says the U.S. could stand to modify its programs to make it as effective as those in other nations.

Proof of even worse policies are in Germany, it says.

“Those with little or no financial incentives for PEVs — most notably Germany, which has not
offered consumer incentives and has relied on demonstration programs in four major regions — have experienced minimal sales,” says the study.

And then you have the anomaly China which has been throwing money at the problem for at least six years and yet last year the state of California purchased more PEVs.

“Financial incentives, however, are not working everywhere, most notably in China, where there has been tepid consumer uptake despite the substantial financial incentives offered,” says the study. “One early analysis of that puzzling situation concludes that Chinese consumers are more concerned about vehicle performance than cost at this stage (Zhang et al. 2013).”

Coming back to the U.S. picture, the patchwork quilt of state-level incentives ranging from $605 in Utah to $6,000 in Colorado, to nothing in some states is implicitly inequitable consequence of states’ rights to conduct policy as their respective lawmakers see fit.

The study does not take a stand on that, but does benignly note consumer education is at stake because of the way things are now run.

Concerns beyond the study have been voiced that if incentives re not held up, and manufacturers reach sales caps too soon, progress in the market's growth could stall.

Concerns beyond the study have been voiced that if incentives re not held up, and manufacturers reach sales caps too soon, progress in the market’s growth could stall.

“The many state incentives that differ in monetary value, restrictions, and calculation methods make it challenging to educate consumers on the incentives that are available to them and emphasize the need for a clear, up-to-date source of information for consumers,” says the study.

Pains were taken by the study’s long list of distinguished authors for it to remain unbiased, and it says more is needed if the U.S. wants to grow the PEV market like it means it.

“Overall, the experience worldwide demonstrates that substantial financial incentives are
effective at motivating consumers to adopt PEVs,” says the study.

Overcoming Barriers to Deployment of Plug-in Electric Vehicles