Lentis/The Politics of Electric Vehicle Subsidies

Electric vehicle (EV) subsidies in the U.S. have been in place for over a decade to promote the adoption of battery electric vehicles (BEVs) as a key strategy for reducing greenhouse gas emissions and fostering sustainable living . These subsidies also aim to support domestic economic growth by applying only to EVs manufactured in the U.S. While various types of electric vehicles exist, including e-bikes, electric trains, this chapter focuses specifically on U.S. subsidies for plug-in hybrids (PHEVs), hybrid electric vehicles (HEVs), and battery electric passenger cars, such as Teslas.

History of Electric Vehicle Subsidies

The push for cleaner energy and vehicles began gaining momentum in the mid-2000s, with the Energy Policy Act of 2005 promoting hybrid vehicles. The Energy Improvement and Extension Act of 2008 expanded on this by introducing a tax credit of up to $7,500 for qualifying plug-in electric vehicles manufactured in the U.S., determined by battery capacity and vehicle weight. However, the credit was limited to the first 200,000 EVs sold per manufacturer, after which it phased out. Tesla was the first automaker to reach this limit in 2018.Under the Biden administration, the Inflation Reduction Act of 2022 extended the $7,500 credit and introduced a new $4,000 credit for used EVs. Additionally, the Bipartisan Infrastructure Law of 2023 allocated $7.5 billion to develop a nationwide EV charging network, reinforcing the continued commitment to EV adoption.

Industry lobbying

Automakers and Energy Companies

Major U.S. EV manufacturers like Tesla and Rivian leverage tax credits to boost sales by making their vehicles more affordable. These companies actively lobby for subsidies, often through partnerships with advocacy groups like the Zero Emission Transportation Association (ZETA). Backed by EV manufacturers and key players like Waymo, ZETA works to “promote the transition to EVs” by advocating for expanded charging infrastructure, greater accessibility to EVs, and improved domestic battery manufacturing, among other focal points. ZETA also supported the Inflation Reduction Act of 2022, submitting “several comments in support of IRA implementation”. Energy companies Con Edison and the Tennessee Valley Authority benefit from increased EV adoption as they enable the charging of the vehicles and are also partnered with ZETA. Traditional automakers like Ford and GM have invested $146 billion over the past three years in EV development and also lobby for subsidies to support these investments. In its 2022 U.S. Political Engagement Report, Ford stated it is “supportive of consumer EV incentives” and is working with government partnerships to boost U.S. EV production.

Oil & Gas Companies and Advocacies

Opponents of EV subsidies argue that existing tax credits for electric vehicles (EVs) disadvantage oil and gas companies, disproportionately benefit the wealthy, and impose excessive costs on the government. The Institute for Energy Research, an advocacy group backed by the fossil fuel industry, submitted a 2018 study to Congress estimating these tax credits could cost American taxpayers $95 billion by 2035. Framing the subsidies as economically burdensome is a key strategy for the fossil fuel industry to protect its interests.

The National Mining Association (NMA), supported by numerous oil and gas companies like Alliance Resource Partners L.P., also lobbies heavily for fossil fuel power plants and the mining sector. Its president and CEO criticized the EV tax credits in the Biden administration’s Inflation Reduction Act, claiming they “essentially amount to a blank check from the American taxpayer to China”. Through lobbying efforts and economic arguments, the oil and gas industry work to sustain its businesses by challenging the financial viability of EV subsidies.

Economic Impact

Electric vehicle (EV) subsidies have played a key role in motivating domestic EV manufacturing and job creation. Policies, such as the Inflation Reduction Act (IRA) of 2022, directly connect subsidies to domestic production requirements, encouraging automakers to invest within the United States. For example, Ford is building EV battery plants in Tennessee and Kentucky, which are expected to create nearly 11,000 new jobs between the two states. This increase in investment in domestic production has strengthened local communities and strengthened the supply chain network within the U.S.

Furthermore, subsidies have made EVs more affordable. Consumers are offered up to $7,500 in tax credits for purchasing new EVs, and $4,000 for purchasing used ones. A consumer’s tax credit eligibility is based on their income, ensuring that middle and lower income consumers primarily benefit from the subsidies. These tax incentives have shrunk the price gap between EVs and Internal Combustion Engine (ICE) vehicles, causing EV adoption rates to increase. However, there is an ongoing discussion regarding the long-term need for subsidies. As the EV market continues to expand, attention is shifting towards investments in EV-related infrastructure, such as a national EV charging network. Some argue that while the EV market needs to continue to grow, it should be without the need for direct consumer incentives. Critics claim that these subsidies distort the market, artificially inflating demand for EVs, while also diverting resources away from potentially more effective solutions to limiting emissions, like public transit.

Unfortunately, the domestic sourcing requirements that come from the Inflation Reduction Act have led to international trade tensions, particularly with the European Union. The provisions in the IRA require that EVs, along with their components, be manufactured in North America in order to qualify for subsidies. International trade partners have criticized this policy, arguing that the U.S is violating international trade agreements set by the World Trade Organization, and has disadvantaged foreign automakers in the process. One company that has been outspoken about the subsidies harming foreign automakers is Hyundai, who manufactures their EVs in South Korea. Following the signing of the IRA, Hyundai shares fell around 4%, although they have recovered since. However, the U.S has engaged in negotiations in order to relieve these tensions. Discussions with the EU have explored the possibility of expanding subsidy eligibility to include vehicles assembled in Europe. So far, the only significant outcome of these discussions is that critical minerals used in EV batteries that are extracted or processed in the EU can qualify for IRA subsidies.

Environmental Impact

The environmental impact of electric vehicles (EVs) is a focal point in debates about their adoption. Environmental advocacy groups like the Sierra Club champion EVs as pivotal to reducing transportation emissions. These organizations highlight the zero tailpipe emissions of EVs and their potential to reduce urban air pollution, particularly when powered by renewable energy. They lobby for stronger renewable energy integration alongside EV incentives, creating a synergistic approach to decarbonization.  

On the other hand, critics emphasize the environmental costs associated with EV production. Mining for lithium, cobalt, and nickel—key battery components—raises significant concerns among conservationists and human rights advocates. Amnesty International points to the destructive impacts of mining on ecosystems and the exploitative labor conditions in countries like the Democratic Republic of Congo. These groups argue for greater transparency and ethical oversight in battery supply chains.  

The Massachusetts Institute of Technology (MIT) highlights that while EVs emit fewer greenhouse gases during use, their production is carbon-intensive, especially in regions dependent on coal-powered energy grids. This research informs the agendas of policymakers advocating for investments in clean energy infrastructure to maximize the environmental benefits of EV adoption.  

The automotive industry has responded with efforts to reduce battery-related emissions. Companies like Tesla have pledged to source materials responsibly and improve battery recycling technologies. These commitments are often seen as responses to public and regulatory pressures rather than voluntary initiatives, reflecting the broader sociotechnical dynamics of the EV market.

Equity Concerns

The equity of EV subsidies is a persistent issue, with critics arguing that they disproportionately benefit wealthier households. Research by the Brookings Institution reveals that federal EV tax credits have historically favored higher-income earners, who are more able to afford EVs. This inequity has prompted social justice organizations like the Greenlining Institute to advocate for more inclusive subsidy structures. Their proposals often include point-of-sale rebates, which would immediately reduce costs for low-income buyers, and targeted incentives for used EVs, which are more affordable.  

Rural communities and low-income households often lack access to charging infrastructure, further exacerbating inequities. Groups like the National Rural Electric Cooperative Association emphasize the need for subsidies to support charging infrastructure in underserved areas. Their agenda includes lobbying for public-private partnerships to expand charging networks, ensuring that the benefits of EV adoption extend beyond urban centers.  

State-level initiatives provide contrasting examples of equity-focused policies. California’s Clean Vehicle Assistance Program, which offers grants and low-interest loans to low-income households, serves as a model for inclusive subsidy design. However, similar programs in other states are rare, reflecting disparities in regional priorities and resources.  

Automakers have also begun addressing equity concerns, albeit strategically. Ford and General Motors promote entry-level EV models and publicize partnerships with state programs to appeal to broader demographics. While these efforts align with equity goals, they also serve to expand market share and counter criticism about the exclusivity of EVs.  

Opportunities for Further Study

There are many factors that should still be included in the debate on EV subsidies. One area for exploration is the long-term environmental impact of battery recycling. Further studies could assess the effectiveness of current policies in promoting recycling and identify opportunities for international collaboration. Another promising avenue is the role of local governments in addressing equity concerns. While federal and state policies dominate discussions, cities have unique opportunities to implement innovative approaches. Finally, it is important to determine if EVs are worth subsidizing in the first place, so examining the true “environment saving” benefits of EVs when compared to every other mode of transportation would be highly valuable.