Tax Incentive Uncertainty Surrounds Fuel Cell Vehicles
Tax Incentive Uncertainty Surrounds Fuel Cell Vehicles
author Added by FuelCellsWorks, January 08, 2016

Lisa Jerram-Navigant Research--It’s no secret that incentives continue to play a key role in the progress of alternative energy technologies. Witness the significant media attention given to the last-minute U.S. federal funding legislation, which included a long-term extension for solar energy tax credits out to 2020. The solar industry association is claiming that the tax credits will help solar installations in the United States reach 100 GW by 2020. What’s unusual about this extension is the 5-year timeframe. In recent years, Congress has been loathe to pass legislation establishing long-term energy tax credits. Coupled with Congress’s tendency to pass annual spending bills at the last possible hour, this has led to a constant state of uncertainty regarding energy tax credits.

A sense of certainty is critical for potential adopters or investors, and this extends to knowing whether or not tax credits will be in place. This is not what happened for fuel cell vehicles (FCVs), which are among the technologies that received yet another short-term extension of the federal tax credit through 2016. As a practical matter, this incentive will do little to truly push the FCV market, since there are very few of these vehicles currently available in the United States. The FCV market is just beginning to enter the early commercial phase, with the Toyota Mirai and Hyundai’s fuel cell crossover vehicle (called the Tucson in the U.S. market). Both are available in California, but at limited volume. Toyota has indicated its plans to sell around 3,000 fuel cell Mirai models in the United States through 2017; the Mirai had close to 2,000 pre-orders in California as of October, so Toyota could reach that goal. However, the company has also set a production cap of 3,000 units annually. Honda will be next in the U.S. market with a new commercial FCV, the Clarity, set to be introduced in 2016.

The U.S. fuel cell car market will be in limited supply mode through 2016 while the tax incentives are in effect. Any real impact would be felt closer to 2020, when the market will need to ramp up to sales in the tens of thousands, as noted in Navigant’s most recent Fuel Cell Vehicles report. This next phase of the market is when incentives will be critical, unless the price premium for a fuel cell car has dropped close to parity with a hybrid.

Setting an Example

By contrast, the South Korean government is making a major move to encourage FCV adoption in the long term, announcing a huge new subsidy of around $23,250 for purchases, around a third of the price of a Hyundai FCV in the country. The government plans to build out hydrogen stations with an eye toward building the FCV market to 630,000 vehicles by 2030. It’s surprising that it took the government this long to develop an aggressive FCV adoption strategy, given Hyundai’s commitment to fuel cells and the incentives in place in South Korea for other fuel cell technologies. Nevertheless, it looks like the country is putting in place a long-term strategy of subsidies and investment to promote FCVs domestically.