Public Policy Analysis and Environmental Impacts

Hammett, P., Flynn, M., Sims, M.K., Luria, D. 2005. Fuel-Saving Technologies and Facility Conversion: Costs, Benefits, and Incentives.
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In this report, we examine the ramifications of a manufacturer tax credit that covers two-thirds of the tooling and equipment investment costs. Our analysis suggests that such a credit would cost the federal government about $1.1 billion over five years from 2005 to 2009. However, our analysis reveals that such a credit could: • Position the United States to gain share in the hybrid and advanced diesel markets • Cause half the powertrain components to be made in the United States rather than abroad, resulting in about 10 percent fewer jobs being lost • Induce one-quarter of the hybrid and advanced diesel vehicles that would otherwise have been made in Europe and Asia instead to be made here, saving another 15 percent of jobs • Save at least 27,659 barrels, ,and up to 117,265 barrels, of oil per day, assuming that fuel savings will not be cancelled out by manufacturers backsliding in other vehicle segments • Recoup federal tax incentives over roughly 10 years through increased revenues and new jobs We believe such credits would prove attractive to manufacturers despite the allure of offshoring labor because at least two-thirds of the value of vehicles and parts sold in the United States are made in the United States. Because this proposed tax credit policy would be made available to both foreign and domestic manufacturers around the world, we also think it is unlikely to run counter to international trade laws. Our research has convinced us that hybrids and advanced diesels will play a substantial role over the next several decades of the auto industry’s evolution. A policy such as that proposed clearly states to the world’s automakers and suppliers that the United States is seeking to build its capacity and capability in the vehicles of the future and that the U.S. Treasury is prepared to make it significantly less burdensome to do so.