New guidance makes EV charging incentives widely available

With an announcement last week, the Biden administration has cleared up which parts of the country can access lucrative tax credits for installing electric vehicle chargers.

Now it needs to clear up exactly which parts of an EV charging installation are eligible for the credit — otherwise, the incentive program could fail to generate interest from project developers who need financial certainty before moving ahead with costly charger installations.

That’s the feedback from environmental groups and EV-charging companies on the Treasury Department’s new guidance on the Inflation Reduction Act’s 30C tax credit.

Much as tax credits for electric cars, buses, trucks and other emissions-free vehicles are meant to offset the costs of switching from fossil-fueled to battery-electric vehicles, the 30C tax credit is meant to defray the cost of installing equipment to charge them.

The 30C credit, officially known as the Alternative Fuel Vehicle Refueling Property Credit, is available to individual consumers trying to cut the cost of home charging, as well as to corporate and government entities building megawatt-scale charging hubs for school buses, heavy-duty trucks and highway rest stops. Eligible commercial and institutional projects can receive a tax credit of up to 30 percent of the cost of each charger up to $100,000, and residential installations can receive 30 percent of the cost of a charger up to $1,000.

Thanks to the new guidance, these incentives are available across much of the country. And they could play a ​“huge” role in reducing pollution from a transportation sector that accounts for the single-largest source of U.S. climate-warming emissions, said Max Baumhefner, a senior attorney at Natural Resources Defense Council.

The Biden administration wants to see EVs make up half of all new passenger vehicle sales by 2030. And federal and state policies are targeting the electrification of larger vehicles such as school buses and trucks, which account for an outsize share of transport emissions. One of the biggest barriers to hitting those goals has been the scarcity of EV charging, Baumhefner noted.

“The auto and truck manufacturers aren’t saying they can’t make great zero-emissions vehicles. They’re saying they’re worried there aren’t enough plugs out there,” he said.

New guidance around the geographic scope of the 30C tax credits is an important step toward getting more chargers built, but further clarity is needed to unleash the incentive’s full value.

Solved: Which parts of the country can get tax credits for EV charging 

The Department of Energy map released along with Friday’s guidance makes clear how Treasury has interpreted the law’s geographic restrictions, which limit the credit to non-urban and low-income census tracts.

Only a handful of higher-income urban census tracts are excluded from eligibility. The vast majority of the country is designated as green, for non-urban areas, or orange, for low-income areas.

To be sure, some urban areas are left out, as this screenshot of the Chicago area illustrates.

Still, the Treasury Department estimates that its guidance will allow the 30C tax credit to be used in areas where about two-thirds of the U.S. population now live.

That figure could have been a lot lower, Baumhefner said. That’s because the law’s restrictions don’t precisely match how the U.S. Census Bureau designates areas as urban or rural, he explained, giving Treasury wide latitude to determine the scope.

The Natural Resources Defense Council was part of a coalition comprising environmental, community, business and labor groups that provided analysis and asked the Treasury Department to adopt the inclusive standard it ultimately went with.

Rural and low-income communities are tougher targets for EV-charging companies because fewer EV owners live in them, making it harder to justify the cost of building chargers that won’t be used as often. Having a clearer understanding of where those projects can or can’t get tax credits is helpful in planning which areas to build in.

“We now know that over half of our coming sites are eligible to receive the credit based on their locations,” said Jake Potent, director of policy and government affairs for Revel, a New York City–based EV ride-share company that’s building charging hubs to serve its drivers and the general public.

Still missing: Clarity on which parts of a charging project earn credits

One question that Friday’s guidance hasn’t answered yet, however, is precisely what equipment associated with EV-charging installations will be eligible for the tax credit, Potent said.

“The thing we’re still waiting on is the equipment eligibility — or more specifically, what’s defined as a single item of property,” he said.

The Inflation Reduction Act altered existing EV-charging tax credits that used to apply to an entire charging site. The updated version allows the credit to be claimed on a per-charger basis, he explained. That’s a lot more valuable since a single site can have many chargers, each of which can now earn a tax credit to offset its expense.

At the same time, charging sites also have a lot of ​“shared equipment” such as power conduits, switchgear, transformers and enclosures, he said. ​“There are still questions of whether it will cover just the charger, or additional factors to installation like upgrading power infrastructure.”

That uncertainty is a significant problem for EV-charging developers trying to use the 30C credits to finance projects, said Suncheth Bhat, chief business officer at startup EV Realty, which is developing fleet-vehicle and public charging sites in California and other states.

“In the absence of clarity on the definition of a ​‘single item,’ we can’t appropriately scope what’s included for 30C purposes,” Bhat said in an email.

It’s particularly challenging for developers looking to turn their credits into capital via a new financing mechanism known as tax-credit transferability. The Inflation Reduction Act provision allows many clean-energy developers to maximize the value of tax credits associated with their projects by selling them to companies seeking to reduce their federal tax liability. But without clear rules for what parts of an EV charging investment are eligible for the credit, developers ​“can’t confidently speak to buyers on how much in credits we will have to sell,” he said.

That’s put a roadblock in front of tax-credit transactions related to EV charging, Bhat explained. A number of companies are actively trading clean-energy tax credits under the Inflation Reduction Act’s new tax-credit transferability rules. But ​“our understanding is that there hasn’t yet been a single 30C credit transaction close given the uncertainty,” Bhat said. ​“Sellers and buyers are talking, but there are big gaps in the amount of credits that the sellers want to assume and what buyers are willing to underwrite until the full guidance comes out.”

This may not be a problem for EV owners seeking the tax credit for residential chargers. But it’s a significant barrier to large-scale commercial and institutional charging projects, which rely on this financing mechanism to access the full value of the tax credits their projects generate.

Highway charging is one such area. The 2021 Bipartisan Infrastructure Law passed by Congress directs $7.5 billion in grants to EV charging, but the IRA’s new 30 percent tax credit for chargers is likely to end up directing even more money to charging, Baumhefner said.

Electrifying freight corridors between ports and inland warehouses is another key target for charging. Those corridors suffer some of the worst diesel air pollution in the country, said Katherine Garcia, director of Sierra Club’s Clean Transportation for All campaign.

Many of the school districts buying electric school buses are also eligible to seek tax credits for the chargers they install as direct payments from the federal government under the ​“direct-pay” provisions of the Inflation Reduction Act. While school districts tapping into $5 billion in federal grants and rebates for electric school buses and charging equipment can’t claim the credit for expenses covered by federal grants, they can claim it for any charger costs that exceed those grants.

That makes 30C ​“an important tool to help school districts which are most in need of clean-running, tailpipe-emission-free electric school buses,” said Sue Gander, director of the World Resources Institute’s Electric School Bus Initiative.

But without a rule on which parts of a charging installation are eligible, it’s not clear how quickly these projects will be able to make use of the value the 30C credits could provide, Bhat said.

Revel’s Potent agreed that this guidance is the ​“last outstanding piece” the Treasury Department has to solve to put the 30C credit to work. While the department hasn’t said when it expects to complete this work, he expects it will be in the next few months or so.

“But let’s remember, this tax credit goes through 2032,” he said. ​“So we have some time to figure that out.”