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Tax Incentives Urged for Advanced Technology Vehicles

A manufacturer's tax credit would save up to 117,265 barrels of oil per day

February/March Issue, 2005

In December, the National Commission on Energy Policy recommended establishment of a manufacturers’ tax credit to encourage production of fuel-efficient vehicles and powertrains here in the U.S. The recommendation was quickly endorsed by the United Auto Workers and environmentalists, who argued the plan would save thousands of U.S. jobs and help to improve vehicle fuel economy.

The NCEP is an independent, bipartisan commission of 16 energy experts from industry, government, academia, labor, environmental and consumer groups. The recommendation was based on a groundbreakingnew study conducted for the commission by the University of Michigan’s Office for the Study of Automotive Transportation (OSAT) and the Michigan Manufacturing Technology Center, with assistance from the Ecology Center and the Michigan Environmental Council.

The U.S. stands to lose 38,000 to 207,000 jobs if no other incentives are put in place.

The report argues that as many as 1.8 million more hybrids and advanced diesels will be sold per year in the U.S. within five to eight years. Given Japan’s substantial technological and production leadin hybrids and Europe’s lead in smaller-displacement diesels, offshore-based automakers and suppliers are likely to make the majority of these vehicles and their powertrain components outsidethe United States. As a result, the U.S. stands to lose 38,000 to 207,000 jobs if no other incentives are put in place.

The analysis finds that a manufacturers’ tax credit that covers two-thirds of the transition costs would yield substantial economic and environmental benefits in this country. It would position the U.S.to gain share in the hybrid and advanced-diesel markets, and it could save as many as 200,000 jobs and $2.8 billion per year in federal tax revenues that would otherwise be lost. It would also save up to 117,265 barrels of oil per day, assuming that fuel savings will not be cancelled out by manufacturers backsliding in other vehicle seg-ments. And, most of the job and tax savings would be concentrated in the Midwest, primarily Michigan, Ohio, and Indiana.

The United Auto Workers welcomed the proposal. “The UAWstrongly believes that tax incentives aimed at encouraging the production of fuel-saving advanced technology powertrains and vehicles in the U.S. would yield tremendous dividends in the form of improving our environment, reducing our dependence on foreign oil and preserving good jobs in America’s auto industry,” said UAW President Ron Gettelfinger.

The Ecology Center’s Charles Griffith and Jeff Gearhart contributed to the OSAT study.You can help by urging your state and federal elected officials to support tax incentives for the domestic production of advanced technology vehicles and their components.

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