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POLICIES TO STIMULATE INVESTMENT IN ADVANCED FUEL-EFFICIENT TECHNOLOGIES

Ensuring continued investments in new fuel-efficient technologies here in the U.S. will require new policies that provide incentives for both the manufacture and purchase of advanced technology vehicles and alternative fuels. To make sure that new policies support jobs and local economies, legislation that deals with the auto industry and fuel economy should include the following core principles

MANUFACTURER TAX INCENTIVES

Incentives that encourage increased investments in the manufacture of advanced fuel- efficient technologies could help to accelerate the introduction of fuel-efficient vehicles into the marketplace, while building capacity for the production of these technologies here in the U.S. Such incentives would help to preserve and expand U.S. employment in unionized workplaces as the market for these technologies grows

TAX INCENTIVES

A study by the University of Michigan found that a tax credit for investments in U.S. facilities that produce hybrid and diesel vehicles and their components would create over 59,000 manufacturing jobs and more than pay for itself through increased federal, state and local tax revenues. This approach would also lower the cost of hybrid and diesel vehicles for consumers, improve fuel economy and the environment, and reduce US dependence on foreign oil.

OTHER INCENTIVES

Other financial incentives for the retooling of auto plants, such as loan guarantees and legacy health care cost relief, have also been suggested.

Some proposals have been introduced in Congress, including those listed below. Similar tax policies could also be implemented in key automotive production states.

• Fuel Economy Reform Act of 2007 (S.768) - Senator Obama (D-IL) introduced this bill to reduce U.S. gasoline consumption dependence of foreign oil. It would do this by mandating a 4% annual increase in fuel economy and offering tax credits to retool U.S. plants to meet the new standards.
• DRIVE Act (S.339 and H.R.670) - The House and Senate both introduced versions of this bill, which aims to break America's dependence on foreign oil by increasing production of ethanol and offering tax credits to encourage the production of fuel efficient vehicles.
• PROGRESS Act (H.R.1300) - Representative Hoyer (D-MD) introduced this bill, which provides loan guarantees for the construction of facilities that manufacture advanced vehicle batteries. It also provides grants to manufacturers who retool plants to build high efficiency vehicles and parts.
• American Automobile Industry Promotion Act of 2007 (H.R.1055) - Senator Biden (D-DE) introduced this bill to speed up development and production advanced lithium ion batteries. It offers funding for research and development, as well as testing.

RENEWABLE FUELS STANDARD

Renewable Fuels Standards (RFS) require a certain percentage of fuel sold be made from renewable resources, such as corn, soy or other biomass, rather than petroleum. RFSs help to grow the market for alternative fuels, such as ethanol and biodiesel, support family-supporting wages and employment in rural agricultural communities, and in some cases also help to grow the market for flex-fuel vehicles (FFVs). At least four states have enacted RFSs, including:

• Minnesota - All gasoline sold in the state must contain 10% ethanol now, and at least 20% ethanol by 2013.
• Illinois - 10% of gasoline sold in the state must be replaced with ethanol by 2008 (including ethanol used in gasoline and ethanol used in E85), and 15% must be replaced by 2012.
• Iowa - Biofuels must replace 25% of all petroleum used for gasoline by 2020. Gas retailers must follow a schedule that sets thresholds for the amount of ethanol used each year. For large retailers, the schedule mandates: 10% by 2009, 17% by 2015, and 25% by 2020. Smaller retailers are allowed to phase-in ethanol use more slowly.
• Washington - All gasoline sold in the state must include 2% ethanol by 2008. The percentage increases thereafter depending upon the amount of feedstock grown in Washington.

CONSUMER INCENTIVES

Other policies to spur the development of fuel-efficient technologies include a range of incentives for the purchase of advanced vehicles. Such incentives help to accelerate the market penetration of these vehicles by helping to "buy-down" the initial costs of new technologies in the early years of production and marketing in order to make the costs to consumers comparable to traditional vehicles. They may also help to offset early buyers' concerns that they are investing in new technologies with uncertain long-term or residual value.

FEDERAL TAX CREDIT

In August 2005, President Bush signed the new Energy Policy Act, which created consumer incentives for the purchase of hybrids and other advanced technology vehicles. According to the new act, consumers who purchase hybrids or other alternative energy vehicles are eligible for up to $3600 in federal tax credit, the specific amount depending on the vehicle. This tax credit became available in January 2006 and will be available for the first 60,000 hybrid and alternative energy vehicles sold by each company, after that the credit will be phased out. There are currently proposals in Congress to remove this cap.

STATE AND LOCAL INCENTIVES

Certain states and municipalities offer their own consumer incentives for the purchase and use of hybrid and advanced technology vehicles. Consumer incentives at the local level include state tax credits, use of car pool lanes, and exemptions from parking fees. More information about local incentives can be found at: www.hybridcars.com