The Inflation Reduction Act Will Help Electrify Heavy-Duty Trucking

August 25, 20222 years ago RMI 0 Comments

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The Inflation Reduction Act’s (IRA’s) incentives for heavy-duty electric trucks could not come at a better time. The United States has over 4 million heavy-duty trucks that travel over 150 billion miles and create over 260 million tons of greenhouse gas (GHG) emissions per year. And trucking demand is expected to grow. With the IRA in place, the industry can dramatically decarbonize, potentially reducing its GHG emissions by 59 percent in 2035, nearly double what would happen without the IRA.

Though one of the act’s lesser-known tax credits, the Qualified Commercial Clean Vehicle tax credit — providing up to a $40,000 tax credit — will turbocharge the adoption of electric medium-duty and heavy-duty trucks. The IRA tax credit makes owning an electric truck cheaper than owning a diesel one in most use cases, with urban and regional electric trucks becoming cost-superior to diesel ones as soon as 2023. Trucks can travel 100,000 miles per year, and electrification creates significant fuel savings. Even many long-haul trucks that are the hardest to electrify could be transformed.

Zero-emissions trucks are already market-tested and viable for many uses. RMI’s partner organization NACFE has shown that trucks with routes less than 200 miles a day can be electrified now, with adoption hinging on vehicle economics improving and available depot and on-route charging extending the truck’s range.

Through the global Mission Possible Partnership RMI analyzed trucking economics and how that drives zero-emissions truck adoption. Once zero-emissions trucks become cheaper than their diesel counterparts, adoption follows based predominately on vehicle and infrastructure availability. And with the IRA, the total cost of ownership of electric trucks will be lower than diesel ones approximately five years sooner than without the law. This is true for urban trucks that travel locally in cities an average of 50–100 miles a day; regional trucks that move 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 to recharge en route.

A fleet’s purchase decision can be based on environmental commitments, fueling access, financial resources, and operating requirements, but for most fleets, cost is the driving concern; once electric trucks make the most economic sense for fleets, they increasingly adopt them. By getting to cost parity sooner, the IRA jumpstarts a virtuous cycle. Fleets start adding charging to their depots and look for e-trucks that meet their operational needs. Truck manufacturers and charger manufacturers respond to this demand with new and better products further improving electric truck costs and operational viability, driving even more adoption. Because of this, RMI projects that the IRA will lead to far greater electric truck sales. By 2030, over 60 percent of new truck sales could be electric (depending on supply chain issues).

We determined our projections based on the tax credits for both the vehicle and the charger infrastructure:

Qualified Commercial Clean Vehicles Credit: Vehicles greater than 14,000 lb. that operate on batteries alone receive a tax credit of $40,000 or 30 percent of the vehicle cost, whichever is lower.
Alternative Fuel Refueling Infrastructure Credit: Charger infrastructure tax credits are 30 percent of the cost of installing chargers, up to a lifetime benefit of $100,000 per site.

The model limits annual sales growth to reflect market constraints such as grid electricity supply, e-truck availability, and the time it takes to introduce new vehicle models. To realize the IRA’s full potential, manufacturers will have to ramp up production and obtain battery cells that are also needed by electric cars and for electric grid storage. To obtain the full tax credit, vehicles will have to meet North American final assembly requirements, which may be a challenge for some manufacturers. We have modeled the potential market growth based on electric truck manufacturers being able to comply. Vehicles utilizing the qualified commercial vehicle credit do not need to comply with the new battery and critical mineral requirements in the 30D clean vehicle tax credit for individuals.

Beyond these modeled aspects, the bill makes other investments that encourage zero-emissions truck adoption. 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-emissions heavy-duty vehicles and other funding for disadvantaged communities that could be used to electrify local depots. The IRA also includes expansions and extensions of utility-scale renewable tax credits, which lower utility costs and improve the fuel cost advantage electric trucks have over diesel vehicles by making vehicle charging cleaner and more affordable.

Transportation is the leading source of greenhouse gas emissions in America, and pollution from medium- and heavy-duty trucks is a significant contributor to poor air quality. Disadvantaged communities often house a disproportionate number of trucking facilities and experience higher levels of vehicle related air pollution health risks. E-trucks may begin benefitting urban disadvantaged communities as soon as 2023, since urban and regional trucking is most financially and operationally suited to electrification.

Analysis from the REPEAT Project at Princeton University found the Inflation Reduction Act and Bipartisan Infrastructure Law could save 35,000 premature deaths by 2032 from reduced exposure to fine particulate matter from energy activities, with light-, medium-, and heavy-duty trucks and buses comprising over 50 percent of the cause. Strategic utilization of IRA tax credits and the Clean Heavy Duty program make truck electrification an impactful environmental justice opportunity.

Meeting Surging Demand

The IRA jumpstarts the transition to electric trucks. Fleet operators should start planning for moving to electric trucks today. But it’s not just fleets that have work to do. Manufacturers, utilities, and regulators must also do their part by ensuring that fleets that want e-trucks can buy them. With demand projected to exceed supply, e-truck manufacturers will have to ramp up 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 new electric load that can range from as large as a skyscraper to greater than a central business district. By 2035 our grid must be prepared to add 230 TWh of new truck electricity demand, including power for nearly 150,000 fast public chargers and 860,000 depot chargers.

The IRA’s model of providing stable but temporary incentives for new technologies will be especially impactful for heavy-duty trucking. Zero-emissions trucks have proven that they can provide the essential hauling service the United States needs. The IRA makes the case for zero-emissions trucks even stronger. It’s time for fleets, utilities, OEMs, and policymakers to step up so that we can have the cleanest, most economic trucks on the road.

By Ari Kahn, Gerard Westhoff, Dave Mullaney