https://crsreports.congress.gov
August 21, 2025
Economic Perspectives on Electric Vehicle Tax Credits
P.L. 119-21, commonly known as the One Big Beautiful
Bill Act (OBBBA), terminated three tax credits for plug-in
electric vehicle (EV) purchases: the used clean vehicle
credit (UCVC), the credit for qualified commercial clean
vehicles (CQCCV), and the clean vehicle credit (CVC).
This In Focus provides background information on the
economic, environmental, and distributional impacts of EV
tax credits. It describes studies examining the degree to
which EV tax credits boost EV sales, reduce greenhouse
gas (GHG) emissions, and change the distribution of
income in the United States.
Legislative Background
The UCVC and the CQCCV were enacted as part of the
Inflation Reduction Act of 2022 (IRA; P.L. 117-169). The
CVC was enacted under the Energy Improvement and
Extension Act of 2008 (P.L. 110-343) and was modified in
the IRA. The UCVC provides a credit of up to $4,000 for
individuals purchasing used EVs costing $25,000 or less;
the CQCCV provides a credit of up to $40,000 (or $7,500
for light-duty vehicles) for businesses purchasing EVs that
are leased to customers or used in the ordinary course of
business; and the CVC provides a credit of either $3,750 or
$7,500 for individuals purchasing new EVs, subject to
certain income, price, and domestic content requirements.
These three credits and their qualifying criteria are
described in greater detail in CRS In Focus IF12600, Clean
Vehicle Tax Credits.
P.L. 119-21 terminated the EV tax credits for vehicles
acquired after September 30, 2025. The repeal of the three
credits is projected to reduce federal deficits by $190 billion
over the 10-year budget window (FY2025-FY2034).
Marginal vs. Inframarginal Tax Credit
Recipients
The efficiency of EV tax incentives depends, in part, on the
degree to which they induce marginal EV buyers or accrue
to inframarginal EV buyers. Marginal EV customers are
those whose decisions to purchase or not purchase an EV
are directly impacted by the existence of a tax incentive.
Put differently, they are on the fence (or margin) with
regard to their decision. In contrast, inframarginal buyers
are those who have decided to purchase an EV regardless of
the tax credit. The tax credit may cause inframarginal
buyers to purchase a more expensive EV (albeit without
violating any price limitations in the relevant credit), but it
does not motivate a decision to purchase an EV.
The distinction between marginal and inframarginal
purchases is important when examining EV sales data.
According to Argonne National Laboratory, EV purchases
have increased more than five-fold in recent years, from
1.9% of light-duty vehicle sales in 2018 to 9.8% in 2024.
The stock of EVs on the roads has similarly increased from
0.4% of light-duty vehicle registrations in 2018 to 1.7% by
2023, according to the Department of Energy. Not all of the
increase in sales can be attributed to the EV credits.
While the precise estimates differ, the literature on EV tax
credits suggests that most tax credit recipients would have
purchased an EV without the credit. For such individuals,
the credit represents a financial windfall.
Studies of the IRA-reformed credits suggest that roughly 7
out of 10 EV tax credit recipients are inframarginal. Allcott
et al. (2024) estimate an inframarginal share of 67% to
77%; the Congressional Budget Office (CBO) (2023)
estimates a share of 68%; and shortly after the IRA’s
passage, the Brookings Institution (2023) projected that
73% of EV tax credit recipients would be inframarginal.
These estimates align with studies of other EV tax credit
programs. Xing et al. (2021) and Tal and Nicholas (2016)
estimate that for the previous version of the CVC—that
which predated the IRA—70% and 71.5%, respectively, of
tax credit recipients were inframarginal. Similarly, Chandra
et al. (2010) found that in Canada, 74% of consumers
receiving a rebate for hybrid vehicle purchases would have
bought a hybrid without the rebate. Finally, when the
German government abruptly and unexpectedly eliminated
a $4,900 EV subsidy, year-over-year EV sales fell 26.6%,
consistent with roughly three-quarters of subsidy recipients
being inframarginal.
Environmental Impact: Displaced
Vehicles and Their Emissions
EV credits may increase economic efficiency by addressing
the spillover costs imposed on society (also known as
negative externalities) when one person’s actions create
costs for other people. Driving gas-powered cars can create
negative externalities, harming individuals who breathe
polluted air or suffer through heat events attributable to
climate change. EV tax credits may lower the usage of gas-
powered cars, thereby decreasing air pollution, greenhouse
gas emissions, and other externalities. Tax credits will
prove more effective at shifting consumers away from gas-
powered cars and toward EVs if consumers are sensitive to
reductions in the after-tax-credit prices of EVs.
Research into the environmental effects of EVs and gas-
powered cars has not yielded precise, consistent results.
However, such research indicates that EVs generally
produce less pollution than gas-powered cars, especially
when EVs use electricity produced from sources such as
wind, solar, or nuclear power, among others. Analyses of
lifecycle GHG emissions—emissions associated with
manufacturing, driving, and even scrapping a vehicle—
indicate that for model year 2019, battery-electric vehicles
(BEVs) produce 1.8-3.5 tons of carbon dioxide equivalent
per year, whereas gas-powered cars produce 4.1-14.7 tons.
