Corporate Fleet Conversion Gets a Boost from New Climate Law
Tiger Fuel’s EV Charger Ribbon Cutting
This blog is the second in a series about the implications of the historic climate legislation, the Inflation Reduction Act. Here, our Director of Corporate Sustainability Coles Jennings breaks down the good news for Virginia businesses and nonprofits when it comes to converting corporate fleet to electric vehicles.
11/18/2022 Note: This blog has been edited to reflect the fact that the commercial electric vehicle charging credit is only eligible for low-income areas.
On your next trip around town, take quick stock of how many trucks, delivery vans, and maintenance pickups you see on the road that are operated by a locally-based business. Now imagine how much cleaner and quieter our roads could be with all of those powered by electric motors.
This future dream is going to require true leadership from local organizations, and a willingness to learn and adapt (looking at you, Green Business Alliance!). The great news is that none of this has to require a sacrifice to the bottom line, especially as EV technology continues to rapidly mature. This is especially true now that we have major federal support in the form of the Inflation Reduction Act (IRA).
Last week, I focused on the recently passed IRA’s beneficial impact on commercial buildings. Through support for on-site solar installations and energy efficiency, the IRA promises to catalyze a decade of significant decarbonization of the built environment.
For many organizations, though, buildings are just one part of their direct carbon footprint. Vehicles that are directly operated by a business (e.g. corporate fleets) can have significant emissions, in some cases making up the majority of corporate outputs. An organization’s on-the-road emissions also tend to be more of a contributing factor to local air pollution than those that are building-related, so there is an added layer of community impact and responsibility to this particular challenge.
Much like solar and energy efficiency, we have the technology we need now to start making major changes. While batteries and EVs are still working their way down the cost and efficiency curves, the business case is already there for many commercial vehicle applications. We’ve seen this validated by big corporate commitments to fleet transitions, which is helping scale manufacturing and get innovative car and truck companies off the ground. These kinds of commitments would have been unheard of just a few years ago.
Large corporate adoption is incredibly important and a vital first step in cleaning up commercial transportation. We’ll start to see even more dramatic changes in our community, however, when local employers get in on the action.
So let’s continue the IRA festivities by taking a closer look at two key areas where the IRA is expected to make an impact on commercial fleets, and how they’ll enable community employers to electrify their vehicles in the coming years.
Two electric vehicles for the sales team at Sigora Solar
Purchasing Vehicles - Commercial Clean Vehicle Credit
The IRA takes a pretty consistent approach across the board: reinvigorating incentives that are already popular and making them more potent, stable, and transferrable. These tactics will keep momentum going for technologies that are rapidly growing into maturity, such as batteries and EVs.
The bill’s approach to EVs is no different. The Commercial Clean Vehicle Credit uses this same strategy, by heavily incentivizing EV purchases over the next ten years, starting in 2023:
Provides $7,500 credit for new light duty vehicles, up to 14,000 lbs.
Provides $40,000 credit for heavy duty vehicles, over 14,000 lbs.
Extends the credit until 2033.
Caps incentives at 30% for all-electric, and 15% for hybrid.
Makes the credit transferable to the retailer.
Does not apply the same domestic manufacturing requirements as the consumer version of the credit.
The last two aspects are worth going over in more detail. The transferability of all of the IRA tax credits, also called “Direct Pay”, is an important feature for simplifying the refund process. By making the credit transferable, the purchaser can now transfer the credit directly to the retailer. In doing so, this acts as an immediate discount off of the sticker price, and leaves the paperwork to the seller, not the buyer. This should remove all of the hassle on the customer’s side, which was not an insignificant barrier to the previous version of the credit.
Also importantly, the same manufacturing requirements that have been in the headlines around the consumer credit do not apply to the commercial version. This avoids much of the confusion and limitations that individual consumers are still sorting through. (If you’re reading this and considering your own EV purchase, bookmark this page to stay updated on which vehicles are eligible). The bill still has heavy incentives to boost domestic manufacturing in other ways, but business purchases will not be caught up in these particular constraints.
Recharging Vehicles - EV Charger Credit
Any organization that’s looked seriously at EV’s knows that obtaining the vehicles is just part of the transition. Another key element is installing recharging stations, in sufficient locations and quantities, to keep the fleet humming.
Here again, the IRA takes a prior credit and supercharges it, though in this case the credit had actually expired to zero. Technically called the Alternative Fuel Refueling Property Credit, this revived tax credit will:
Restore the prior incentive at the same 30% level, but increase the absolute cap from $30,000 to $100,000.
Property eligible for depreciation receives the base rate of 6%.
Extend the credit until 2033.
Change the limit from a per-location basis to a per-charger basis.
Make the credit transferable to the retailer.
The emphasis on the per-charger approach is especially important. Often, the electrical service upgrades required to install even a single charger can add a significant amount to the total cost. Once this service upgrade is complete, however, the cost for additional chargers is often limited to the charger itself. In the new version of the credit, these service upgrade costs can be shared by multiple chargers.
11/18/2022 Note: Further guidance has detailed that this credit is only available in low-income or rural areas. See DOE guidance for details.
In Summary
In some important ways, electrifying fleets can seem like a more daunting task than strategies like solar and energy efficiency. Vehicles are more dynamic assets than buildings, as needs can change quickly and scale may be required to happen fast. Up-front costs can be a challenge, though they are rapidly declining. There are also behavioral and logistical changes that are required to switch to an electric fleet. This makes electric vehicle (EV) adoption a whole different sort of challenge for an organization, and one that requires careful planning and study before jumping in.
These two important IRA credits combine to provide much more robust and long-term support for fleet electrification, helping to overcome these obstacles. The long-term aspect is especially critical for heavy duty vehicles, as many are still a few years out from being cost competitive. Cost factors are especially important for local employers with less margin for risk on newer technologies.
For many light-duty applications, it’s time now to start planning the transition for fleet vehicles and adapting to an electrified approach. The IRA credits seal the deal on what was already a promising picture. In fact, if you can answer yes to most of these questions about any vehicle in your fleet, it likely makes financial and marketing sense to electrify it:
Is it a light duty vehicle?
Is it driving 100-200 miles a day?
Is it getting poor fuel economy (less than 25 mpg)?
Is it idling often?
Is it parked at the same location consistently?
The IRA is one of the last big policy pieces we need this decade to accomplish the deep cleaning of our economy that is so badly needed. Awareness of the climate change problem is at an all time high, and we now have the major technological and policy tools needed to address the most pressing areas for organizations: buildings and transportation.
If we can focus on these two key areas in the coming decade, we can buy time to develop better industrial solutions and more long-term options for energy supply and decarbonization technology. There’s no time like the present to do business better, and now more than ever we need local leaders to help show other organizations what is possible.
Sources:
Breaking it Down: What does the IRA Mean for Fleet Electrification?
Congressional Research Service: Clean Vehicle Tax Credits in the Inflation Reduction Act of 2022