Tax incentives to encourage consumers to purchase the cleanest, most fuel-efficient vehicles on the market have long been a legislative priority for the UCS Clean Vehicles Program. From 2000 to 2003, UCS has worked with a bipartisan group of senators and representatives to develop a comprehensive package of tax credits for the purchase of the full range of alternative-fuel or advanced-technology vehicles, from cars and SUVs to buses and delivery trucks. Most importantly, UCS has worked hard to ensure that these credits are tied to strong environmental performance. We want to be certain that public dollars go to the vehicles that get significantly better gas mileage and are cleaner than the average car in terms of tailpipe emissions.

Tax incentives are an important complement to the tougher regulations for cars and trucks that we have been fighting for and winning. Once these tax benefits are passed, it will be critical to ensure that consumers and businesses know they are available. These incentives will also boost local efforts to replace diesel transit and school buses with alternative-fuel models, making advanced technologies more accessible to transit authorities and school districts.

On March 3, 2003, UCS joined with Senator Orrin Hatch (R-Utah), Representative Dave Camp (R-Mich.), and representatives of the alternative-fuels industry and the auto industry to announce the reintroduction of the CLEAR Act (S. 505), which is designed to provide tax incentives for clean advanced vehicles. The cosponsors of the Senate bill include John Rockefeller (D-W.Va.), James Jeffords (I-Vt.), Lincoln Chafee (R-R.I.), Hillary Clinton (D-N.Y.), John Kerry (D-Mass.), Joseph Lieberman (D-Conn.), Olympia Snowe (R-Maine), Gordon Smith (R-Ore.), Zell Miller (D-Ga.), Mark Dayton (D-Minn.), and several others. On April 3, 2003, the CLEAR Act passed through the Senate Finance Committee with strong environmental performance criteria intact. In the House, Representative Camp introduced the companion bill, H.R. 1054. Unfortunately, the House Ways and Means Committee dramatically weakened the bill by removing the hybrid tax credit and replacing it with a credit for diesel vehicles, which are 3–10 times dirtier than the hybrids and other technologies targeted in the original bill. This weakened version then passed the full House on April 11, 2003. UCS will work with our allies to get the environmentally responsible Senate bill passed and signed into law.

Existing Tax Break Phasing Out

As of April 2003, hybrid car buyers are eligible for a federal income tax deduction. In fact, you can benefit from the tax deduction even if you bought your hybrid in 2002.

		in UCS Hybrid Center  Learn more about Hybrid Cars & SUVs

You can claim this deduction on line 32 of the Form 1040 federal tax return. If you've already bought a hybrid, you can file an amended return for the year you bought the car.

The clean-fuel tax deduction is set to end after 2006, with $500 less available each year as the deduction is phased out. If the CLEAR Act passes this year, there will be generous, performance-based tax deductions available for the purchase of a wide range of hybrids, battery electric vehicles, fuel cells, and alternative-fuel buses and trucks through 2010.

Update: CLEAR Act and the 2003 Energy Bill

Ideally, Congress would have acted on the CLEAR Act provisions independently. Currently, however, they remain one of the very few bright spots in the comprehensive energy authorization bill which Republican leadership claim will be revived in early 2004 after being blocked by a Senate filibuster in late November, 2003.

The negotiated compromise between the House and Senate positions on advanced vehicle tax credits would benefit consumers, promote production of clean, efficient cars and trucks, and will help jumpstart a market for advanced technology vehicles. The auto industry clearly has the technology to offer consumers more environmentally-friendly, high-performing choices—these tax credits coupled with stronger regulatory requirements will help transform the vehicle marketplace.

The credits will be available upon date of enactment for the purchase of hybrid-electrics, fuel cells, and alternative fuel cars and light trucks. The credits are pegged to vehicle performance in the areas of fuel economy, lifetime fuel consumption, and tailpipe emissions: $400 - $2,400 for fuel economy improvements ranging from 125% to 250%; $250 - $1,000 for 1,200 to 3,000 gallons of gasoline saved over the vehicles lifetime. Eligible cars and light trucks must meet or be cleaner than specific tailpipe emissions standards set by EPA beginning in 2004.

Diesel or so-called lean burn vehicles are eligible for credits under the same performance scheme set up for advanced technology vehicles. They must, however, meet tight emissions standards and are likely to receive a fraction of the performance credits available to other technologies. The credits diesel vehicles will receive will be limited by the fuel economy performance metric and the emissions requirements with their main function being to help pay the cost of the emissions control equipment required to allow diesels to be sold under EPA’s tight tailpipe standards which start phasing in 2004.

A disappointing development is that the final language excludes any credits for the sale of alternative fuels—the tax package offers credits for the sale of alternative fuel vehicles but no assistance in making the cleaner alternative fuel more cost-competitive with gasoline.