The Inflation Reduction Act (IRA) incentives for heavy-duty electric trucks couldn’t come at a better time. The United States has more than 4 million heavy-duty trucks that drive more than 150 billion miles and generate more than 260 million tons of greenhouse gas (GHG) emissions annually. And demand for trucks is expected to grow. With the IRA in place, industry can dramatically decarbonize, potentially reducing its greenhouse gas emissions by 59 percent by 2035, nearly double what would have happened without the IRA.
Although one of the bill’s lesser-known tax credits, the Qualified Commercial Clean Vehicle Tax Credit — providing a tax credit of up to $40,000 — will outpace the adoption of electric medium- and heavy-duty trucks. The IRA tax credit makes owning an electric truck cheaper than owning a diesel in most cases, with urban and regional electric trucks becoming more expensive than diesels as early as 2023. Trucks can travel 100,000 miles a year and electrification creates significant fuel savings. Even many of the hardest-to-electrify long-haul trucks could be converted.
Zero emission trucks are already market tested and viable for many uses. RMI partner organization NACFE has shown that trucks with routes of less than 200 miles per day can now be electrified, with adoption dependent on improved vehicle economy and available storage and en-route charging extending the truck’s range.
Through the global Mission Possible Partnership, RMI analyzed the economics of trucking and how it supports the adoption of zero-emission trucks. Once zero-emission trucks become cheaper than their diesel counterparts, adoption follows, based primarily on vehicle availability and infrastructure. And with the IRA, the total cost of ownership for electric trucks will be lower than for diesels about five years sooner than without the law. This applies to urban trucks that travel locally in cities for an average of 50-100 miles per day; regional trucks that travel 100-250 miles per day and return to the same depot; and long-haul trucks that travel 250 or more miles between cities and need recharging en route.
The decision to purchase a fleet can be based on environmental commitments, access to fuel, financial resources and operational requirements, but for most fleets the main concern is price; once electric trucks make the most economic sense for fleets, they are increasingly being adopted. By getting the IRA to price parity sooner, it starts a virtuous cycle. Fleets are beginning to add charging to their warehouses and are looking for e-trucks to meet their operational needs. Truck manufacturers and charger manufacturers are responding to this demand with new and better products that further improve electric truck costs and operational viability, leading to even greater adoption. Because of this, RMI anticipates that the IRA will lead to much greater sales of electric trucks. By 2030, more than 60 percent of new truck sales could be electric (depending on supply chain issues).
We determined our projections based on vehicle tax credits and charging infrastructure:
- Qualified Commercial Clean Vehicle Credit: Vehicles over 14,000 lb. that operate only on batteries receive a tax credit of $40,000 or 30 percent of the vehicle price, whichever is less.
- Alternative Fuel Refueling Infrastructure Credit: Charger infrastructure tax credits represent 30 percent of the cost of installing chargers up to a lifetime benefit of $100,000 per location.
The model constrains annual revenue growth to reflect market constraints such as grid electricity supply, availability of e-trucks, and time to launch new vehicle models. To exploit the full potential of the IRA, manufacturers will need to ramp up production and source battery cells, which are also needed by electric cars and for grid storage. To receive the full tax credit, vehicles will need to meet North American final assembly requirements, which can be a problem for some manufacturers. We modeled the potential market growth based on electric truck manufacturers being able to comply. Vehicles using the Qualified Commercial Vehicle Credit do not need to meet the new battery and critical mineral requirements of the 30D Clean Vehicle Tax Credit for Individuals.
In addition to these modeled aspects, the law brings other investments that support the adoption of zero-emission trucks. The IRA includes a new $1 billion Clean Heavy Duty Vehicles rebate program for state, municipalities, Indian tribes and school associations to convert fleets to zero-emission heavy-duty vehicles and additional funding for disadvantaged communities that could be used to electrify local warehouses. The IRA also includes the extension and expansion of renewable tax credits, which reduce energy costs and improve the fuel cost advantage over diesel vehicles by making vehicle charging cleaner and more affordable.
Transportation is a major source of greenhouse gas emissions in America, and pollution from medium- and heavy-duty vehicles is a significant contributor to poor air quality. Disadvantaged communities often have a disproportionate number of trucking facilities and experience higher levels of health risks from vehicular air pollution. E-trucks may begin to benefit disadvantaged urban communities as early as 2023, as urban and regional freight transport is financially and operationally best suited for electrification.
An analysis from Princeton University’s REPEAT Project found that the Inflation Reduction Act and a bipartisan infrastructure bill could save 35,000 premature deaths by 2032 from reduced exposure to fine particulate matter from energy activities with light, medium, and heavy trucks and buses. more than 50 percent of the cause. The strategic use of IRA tax credits and the Clean Heavy Duty program make truck electrification a significant environmental opportunity.
Meeting growing demand
The IRA kicks off the transition to electric trucks. Fleet operators should start planning for the transition to electric trucks today. But it’s not just fleets that have work to do. Manufacturers, utilities and regulators must also do their part to ensure that fleets that want e-trucks can buy them. With demand expected to outstrip supply, e-truck manufacturers will need to increase production by a factor of 20 by 2035 while meeting new North American final assembly requirements, both of which will be challenging. Utilities and regulators will have to prepare for an unprecedented amount of new electrical load that can range from the size of a skyscraper to larger than the central business district. By 2035, our grid must be ready to add 230 TWh of new truck electricity demand, including power for almost 150,000 public fast chargers and 860,000 depot chargers.
The IRA model, which provides stable but temporary incentives for new technologies, will have an extraordinary impact on trucking. Zero-emission trucks have proven they can provide the essential transportation service the United States needs. The IRA strengthens the case for zero-emission trucks. It’s time for fleets, utilities, OEMs and policymakers to step up their efforts so we can have the cleanest, most fuel-efficient trucks on the road.
By Ari Kahn, Gerard Westhoff, Dave Mullaney
© 2021 Rocky Mountain Institute. Published with permission. Originally posted on RMI Outlet.
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