Senate Finance Committee Chairman Charles Grassley (R-IA) is expressing early support for a $2.5-billion bill providing tax incentives for alternative fuel and advanced technology vehicles, including hybrids, which has been part of the energy bill in the past two Congresses.
But the provision is expected to encounter strong opposition this session from the House Ways and Means Committee and those in Congress concerned about budget deficits.
Grassley told Inside Washington Publishers yesterday that his interest in the CLEAR Act (Clean Efficient Automobiles Resulting from Advanced Car Technologies) is intact, noting Sen. Orrin Hatch’s (R-UT) fervent support for the measure and saying, “It is something I want to do.” The bill will likely be introduced in the Senate in the next few weeks in its original form, congressional sources add, now that the pace is quickening on energy legislation in both chambers.
Energy tax legislation unveiled by the House Ways and Means Committee earlier this week contains an incentive measure for fuel-saving vehicles that bears little resemblance to the CLEAR Act. One of the most controversial aspects of the CLEAR Act has been the question of whether or not diesel technology should be subsidized. The House energy tax package would only provide incentives for so-called lean-burn, diesel technology. This is a major victory for DaimlerChrysler and General Motors, which both have very active diesel development programs, and Volkswagen, which already has four models available with diesel engines.
Grassley himself has acknowledged the bill’s cost issues, asserting that the amount of funding afforded fuel efficient vehicles would depend on “the willingness of conservatives” to move beyond the White House-preferred $6.7-billion price tag for an energy bill. The energy bill that failed to pass the Senate last session contained a version of the measure with a $2-billion price tag. In its budget request, the administration called for $2.5 billion of tax incentives for advanced vehicle technologies.
In addition to incentives for vehicles, the original version of the CLEAR Act also included tax incentives for alternative transportation fuels, such as natural gas, propane and hydrogen, as well as up to $100,000 in tax incentives for installing infrastructure to support alternative fuels. The original bill has been described as a three-legged stool: 1. financial support for fuel-efficient vehicles, including battery-electric hybrids; 2. incentives for alternative fuels; and 3. funding for the refueling infrastructure these fuels and vehicles need. Much of the technology is also seen as a bridge to fuel cells, the ultimate in pollution-free, non-petroleum dependent vehicle technology.
The House position can also be seen as a slap at Honda and Toyota, who have successfully introduced hybrid-electric vehicles to the U.S. market but have no plans to sell diesel vehicles in the U.S., even though they do sell diesel vehicles in Europe. Detroit automakers have more extensive plans for advanced diesel technology.
The chairman of the House Ways and Means Committee, Bill Thomas (R-CA), has been quoted as asking why consumers need incentives to buy the current generation of hybrids when there are waiting lists for them.
Leaders, increasingly concerned over growing U.S. dependence on imported oil, are looking to the transportation sector as the easiest and fastest way to reduce oil consumption. Half of the 20 million barrels of oil consumed in the U.S. is used to make gasoline. Hiking fuel economy standards is likely a non-starter, but providing tax incentives to encourage consumers to buy more fuel-efficient vehicles appeals to a broader constituency, proponents say. The CLEAR Act has enjoyed bipartisan support in the past two Congresses and will surely do so again when it is introduced this session. But like so much other popular legislation, it is competing for increasingly scarce dollars, with the deficit hawks that Grassley mentioned looking to reduce costs wherever possible.
The cost of the House lean-burn incentive has been estimated by the Joint Committee on Taxation to total only $73 million because there are not likely to be many diesel vehicles available on the market before the Dec. 31, 2007 expiration of the incentives. The cost in fiscal year 2006 is estimated at $5 million, in 2007 at $25 million, and $31 million the following year.
The House version provides incentives for diesel-fueled vehicles that improve fuel economy by a minimum of 25 percent over the city fuel economy for weight classes as established by the bill.
The purchaser of a diesel vehicle would be eligible for a $500 incentive. The consumer would also be eligible for another $250 incentive if the vehicle saves 2,500 gallons of fuel over the lifetime of the vehicle, set in the bill at 120,000 miles. The baseline for a 7,000-lb light truck is set at 12 miles per gallon. Opponents argue that a vehicle that is only getting 15 miles per gallon should not be eligible for taxpayer funded incentives.
General Motors, which has a strategy of focusing on improving the fuel economy of large trucks, argues that the actual fuel saved from an improvement of only a few miles per gallon in these vehicles is actually greater than a larger fuel economy improvement in smaller vehicles. Indeed, a truck weighing 7,000 lbs. with a fuel economy improvement of 50 percent over the 12 miles per gallon set as the baseline, 18 miles per gallon, would be eligible for a $1,000 fuel efficiency incentive and $500 for saving more than 2,500 gallons of fuel over the lifetime of the vehicle. It would save 3,333 gallons of fuel over its 120,000-mile lifetime. A vehicle with a city fuel economy of 40 miles per gallon that realized a 25 percent improvement in fuel economy would only save 1,800 gallons.
What might be the most controversial aspect of the bill is allowing incentives for vehicles that meet minimal emissions standards. The advanced technology vehicle incentive measure that was part of last year’s energy bill required an eligible vehicle to meet EPA’s Bin 5, Tier II emissions standard. The bill before the House Ways and Means Committee allows vehicles meeting a less stringent Bin 8, Tier 2 standard to qualify.
As with so many other aspects of energy legislation moving in parallel through the House and Senate, there are going to be vast differences that will have to be ironed out in what will certainly prove to be a contentious conference committee.
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