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Tax Credits for Plug-In Hybrids?

Washington’s growing interest could help make plug-in hybrids more affordable. The payoff: 150 miles per gallon.
March 1, 2007

Plug-in hybrid vehicles, which can be recharged using a standard wall outlet, are becoming increasingly practical because of advances in battery technology. And now the technology is also gaining support in Washington, with the promise that it could soon receive the type of federal tax incentives that have helped fuel the sales of conventional hybrid vehicles over the past several years.

Bush plugs in: Outside the White House, President Bush listens as David Vieau, CEO of A123 Systems, describes the features of a plug-in hybrid, which is powered by either an electric motor or a gasoline engine. This converted Toyota Prius includes a battery pack made by A123 that extends the amount of time the car can run on electricity, saving gasoline. The pack fits into the car’s spare-tire compartment and can be recharged by being plugged into an outlet. The extension cord is attached to the vehicle’s rear bumper (bottom left).

Like conventional hybrid vehicles, plug-in hybrids can run on gasoline and electricity. But plug-in hybrids have bigger battery packs that can be easily recharged. As a result, they can run longer on electric power, saving much more gas than an ordinary hybrid can. Depending on the configuration of the vehicle, people who drive less than 40 miles a day could use no gasoline at all, while the average U.S. driver could see fuel economy of 150 miles per gallon. Although the vehicles consume electricity, the power will come at a fraction of the cost of gasoline, and it promises to reduce greenhouse-gas emissions.

Although no major automaker currently sells a plug-in hybrid, a handful of companies provide aftermarket conversion kits. Indeed, at the White House last Friday, President Bush viewed one example of a Toyota Prius, a conventional hybrid car, that had been converted into a plug-in hybrid using a battery pack that fits in the car’s spare-tire compartment.

President Bush called the plug-in hybrid and an all-electric-powered pickup “living proof” that his ambitious goal of reducing gasoline consumption by 20 percent in 10 years is possible. He also renewed his request for research money for alternative energies. The administration’s proposed fiscal-year 2008 budget, which was released February 5, includes $41.8 million for battery- and energy-storage research and development.

Interest in plug-in cars extends to Congress. In January, a bill was proposed in the Senate that would provide an up to $4,200 tax credit to offset the expense of plug-in hybrids, which can cost about $10,000 more than a conventional hybrid.

At the White House event, David Vieau, CEO of A123 Systems, a startup based in Watertown, MA, whose batteries are used in the plug-in hybrid, proposed to President Bush that the government offer $2 to $3 billion in tax incentives over the next seven years and provide $300 to $400 million in research dollars over the next few years. Such incentives, Vieau said, could help plug-in hybrid conversions grow from a few hundred now to thousands later, starting in as soon as 12 months.

Deron Lovaas, who heads the vehicle campaign at the National Resources Defense Council, says that several such tax-incentive bills will likely be submitted this year. “There are sure to be others, because there’s a lot of enthusiasm about this in D.C. right now,” he says.

Lovaas says that tax credits could have a significant impact on plug-in hybrid sales. He cites the success of tax credits for conventional hybrids, whose sales have doubled every year since 2001. (See a summary of current tax credits here.)

Automakers have recently expressed increased interest in developing plug-in hybrids. Late last year, General Motors (GM) announced an upcoming plug-in version of its Saturn Vue. (See “GM’s Plug-In Hybrid.”) A123 Systems announced an agreement with GM to help develop a prototype battery pack for the Vue. The packs are scheduled to be ready for testing in vehicles by the end of the year. In January, GM also revealed its Volt concept car. The vehicle takes plug-in hybrids a step further by using an all-electric drive train. The battery pack can be recharged by an onboard gas-powered generator or by plugging it into the wall. (See “Powering GM’s Electric Vehicles.”)

A study released last week suggests that over time, plug-in hybrids could cut overall vehicle emissions of carbon dioxide in half, while saving owners about $450 a year in fuel costs. According to a press release announcing the study, which was done by the National Renewable Energy Laboratory, in Golden, CO, and the utility company Xcel Energy, based in Minneapolis, although plug-in hybrids would draw power from the electricity grid, they would not necessarily increase the need for electrical infrastructure. That’s because they could be recharged at night when much of the capacity of power plants isn’t being used. Another study, by the Pacific Northwest National Laboratory, also suggests that plug-in hybrids could be charged using existing power plants, at least in most of the country. (See “How Plug-In Hybrids Will Save the Grid.”)

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