South SFV Today

New research indicates that electric vehicle (EV) tax credits under the Inflation Reduction Act (IRA) have reduced climate pollution and supported American car manufacturers, though not without significant costs. The study, released on October 7 by the National Bureau of Economic Research, provides a detailed analysis of the economic impact of these subsidies.

The findings suggest that while the EV purchases post-IRA have increased profits for American automakers and provided consumers with up to $7,500 in tax credits, most beneficiaries would have bought an EV regardless. This raises concerns about the effectiveness of taxpayer spending on this cleaner energy policy.

Economically, the researchers report that for every dollar spent by the government on new EV tax subsidies, $1.87 in U.S. benefits was generated when considering pre-existing subsidies. Without any EV subsidies, however, only $1.02 in benefits per dollar was realized.

Hunt Allcott from Stanford University comments on the mixed results: “This policy is not a home run,” noting both environmental gains and high taxpayer costs.

The study suggests more targeted tax credits could enhance benefits by focusing on cleaner EVs due to varying environmental impacts among different models. It highlights how transitioning from a hybrid Toyota Prius to an electric Tesla Cybertruck might increase pollution despite promoting cleaner energy vehicles.

Using sales data from various universities including Stanford and Duke, researchers identified EV buyers as primary beneficiaries of IRA tax credits. U.S. car makers also benefited due to requirements for North American assembly and sourcing components from U.S. allies.

Felix Tintelnot from Duke University remarks on ally-shoring's mixed outcomes: “These subsidies have benefited U.S. consumers and U.S. firms, and have both helped and hurt U.S. allies.”

Joseph Shapiro from UC-Berkeley points out trade-offs between trade policies and environmental goals: “The IRA subsidies have advanced vehicle electrification by limiting foreign competition.”

The study also critiques the IRA’s leasing loophole which allows any leased EV to qualify for subsidies regardless of manufacturing origin, encouraging foreign-made vehicle acquisitions without substantial environmental benefit.

Co-authors include Reigner Kane and Max Maydanchik from the University of Chicago with funding support from institutions like the Becker Friedman Institute and National Science Foundation.