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Clean Diesel Vehicles Now Eligible for Same Tax Credits As Hybrid Vehicles; However, Congress Caps Credits for Hybrid Cars

August 02, 2005

WASHINGTON, D.C. — Within a 1,724-page energy bill approved by Congress is a new tax credit intended to make fuel-efficient vehicles, including e hybrids or cleaner burning diesel vehicles, more appealing to consumers, reported the New York Times. The credit is available through December 31, 2010.When Congress first enacted tax incentives for hybrid vehicles in 2001, there were just two hybrid models on the market. In 2005, there will be nearly 10 hybrid models for sale in the United States by the end of the year. The bill, however, limits the number of vehicles eligible for the credit. That means automakers, including Toyota and Honda, that have more developed programs will see their vehicles become ineligible faster than companies like DaimlerChrysler and General Motors, whose advanced hybrid technology will not be available until later this decade. The energy bill sets up a complex formula that begins restricting eligibility for the tax credit once an automaker sells 60,000 gas-electric hybrids or cleaner burning diesels, known as advanced lean-burn vehicles. Once an auto company hits the 60,000 mark, it has the remainder of that fiscal quarter plus one additional quarter in which buyers of its vehicles can receive the full credit. The credit ranges from $250 to $3,400 depending on the fuel efficiency of the vehicle.During the two quarters immediately after the cars and trucks of the automakers become ineligible for the full credit, buyers would receive 50 percent of the credit. The next two quarters after that, the credit is 25 percent. The credit is phased out entirely at the end of the fifth full quarter after the automaker sells 60,000 hybrids or advanced diesels.By capping the credit, Congress has limited the incentives available to companies that have been at the forefront of hybrid technology. Because Toyota already produces many hybrids, its vehicles could become ineligible for the full credit during the first year, reported the New York Times. If President Bush signs the energy bill, the tax would take effect Jan. 1, 2006. This year alone, Toyota projects it will sell 140,000 hybrids. If sales continue at that level next year, Toyota could hit the 60,000-vehicle cap in the second quarter, giving it until the end of the third quarter before its cars and trucks become eligible only for a reduced tax credit.Honda faces a similar problem. It estimates annual hybrid sales at 50,000, meaning its vehicles could become ineligible for the full credit sometime by mid-2007. That would be nearly two years before the credits expire Dec. 31, 2009.Ford, the first American automaker to embrace hybrid technology in passenger cars and trucks, would also see its vehicles lose eligibility for the full credit before the program expires. Ford currently sells about 20,000 hybrids a year. Over the next three years, however, it will add hybrid tech-nology to three additional models, giving it a total of five hybrid models, reported the New York Times.The cost of all the alternative technology vehicle tax credits in the bill is $874 million. That in-cludes tax breaks not only for hybrids and cleaner diesel engines but also for fuel cell and alternative fuel vehicles.
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