Federal Legislation Supports and Advances Alternative Fuels

Updated October 11, 2016

Alternative fuels and alternative fuel vehicles (AFVs) are playing an important role in advancing national energy security and reducing emissions of greenhouse gases and criteria pollutants that negatively affect air quality. Certain targeted federal legislation and incentive-based programs support alternative fuel development and deployment through a variety of mechanisms and for a variety of stakeholders. These efforts have been instrumental in creating and supporting a growing demand for alternative fuels. Although funding for programs may fluctuate, consistent and certain federal support through established programs helps to ensure a promising future for alternative fuels.

Setting a Precedent

The Clean Air Act of 1970 is a key piece of domestic environmental legislation that has served as a foundational block for provisions relevant to fuels and vehicles. Provisions within the Act addressed mobile source pollution and set forth limitations intended to reduce emissions. The Energy Policy and Conservation Act of 1975 further regulated mobile sources through the implementation of Corporate Average Fuel Economy (CAFE) standards. These legislative provisions established an underpinning for the 1990 Amendments to the Clean Air Act, which in turn set the stage for the development and implementation of substantive alternative fuel programs, including those set forth in the Energy Policy Act of 1992 (EPAct 1992). EPAct 1992 established both mandatory and voluntary programmatic activities to increase alternative fuel use and reduce petroleum consumption.

The Surface Transportation Acts, including the most recent Fixing America’s Surface Transportation (FAST) Act of 2015, have also addressed AFVs and alternative fuel infrastructure.

For additional information about these and other relevant federal statutes, see the Key Federal Legislation page.

Tax Credits

Congress has authorized an assortment of tax credits that federal agencies have implemented to incentivize the use of alternative fuel and the acquisition of AFVs (Table 1). These financial incentives help vehicle manufacturers and fuel producers, distributors, and purchasers offset incremental costs over conventional fuels and vehicles and support a strong AFV market.

Table 1. Alternative Fuel and AFV Federal Tax Credits
Monetary Incentive Eligible Fuel Type(s) Current Expiration
Infrastructure Tax Credit 30% of cost, up to $30,000; $1,000 for residential Natural gas, hydrogen, propane, electricity, biodiesel, and others December 31, 2016
Alternative Fuels and Alternative Fuel Mixtures Excise Tax Credit $0.50 per gallon Natural gas, hydrogen, propane, biomass, and others December 31, 2016
Biodiesel Income Tax Credit and Biodiesel Mixture Excise Tax Credit $1.00 per gallon Biodiesel December 31, 2016
Biofuel Producer Tax Credit $1.01 per gallon Second generation biofuel December 31, 2016
Fuel Cell Motor Vehicles Tax Credit $8,000 per vehicle Hydrogen December 31, 2016
Plug-In Electric-Drive Motor Vehicle Tax Credit $2,500-$7,50 per vehicle Electricity Once 200,000 qualifying vehicles are sold per manufacturer
Two-Wheeled Plug-In Electric-Drive Motor Vehicle Tax Credit 10% of vehicle cost, up to $2,500 Electricity December 31, 2016

Congress established most of the tax credits in Table 1 in the Energy Policy Act of 2005. These incentives have a history of lapsing, being reinstated, and being extended multiple times, as was the case in 2012, 2014, and 2016. For example, the infrastructure tax credit expired December 31, 2014, but Congress retroactively instated this credit for calendar year 2015 and extended it through 2016 via the 2015 Consolidated Appropriations Act. For more information about expired tax credits, see the Expired, Repealed, and Archived Incentives and Laws page. Reinstated tax credits are listed with the current incentives and include a brief note about the legislative history.

Grants and Loans

The federal government has funded a number of successful grant and loan programs that support alternative fuel technology research, development, and application. States, municipalities, universities, and other tax-exempt organizations often rely on these programs as an alternative to tax credits that are otherwise unavailable to them.

The State Energy Program (SEP) and the Congestion Mitigation and Air Quality (CMAQ) Improvement Program are federally authorized and funded programs that are implemented on the state and local level. SEP funding provides grants to states to help design, develop, and implement renewable energy and energy efficiency programs. States may receive project funding from transportation technology programs in the U.S. Department of Energy's (DOE) Office of Energy Efficiency and Renewable Energy for SEP Special Projects that facilitate and accelerate the availability of alternative fuels. CMAQ provides funding to state departments of transportation, local governments, and transit agencies for projects and programs that are intended to help reduce mobile source emissions and regional congestion on transportation networks, including projects involving alternative fuel vehicles and infrastructure. A good example of the efficacy of these programs involves the Houston-Galveston Area Council's use of the SEP and CMAQ programs in 2016 to secure $11.1 million to purchase nearly 500 new school buses and retrofit 42 more with emission reduction technologies. These cleaner school buses reduced local oxides of nitrogen emissions by 179 tons. For more information on the project, see the Alternative Fuels Data Center's Deploying Clean School Buses in Texas case study.

Other federal research, grant, and loan programs include biofuel production grants and loan guarantees, advanced energy research project grants, alternative fuel and advanced vehicle technology research and demonstration bonds, and low and zero emission public transportation research, demonstration, and deployment funding.

Non-Financial Incentives and Mandates

Federal law authorizes non-financial incentives, such as exemptions from certain requirements, and sets explicit mandates regarding growth in fueling infrastructure. Exemptions and other non-financial benefits make AFVs comparable or better choices for consumers and fleets than conventional vehicles. Meanwhile, growth in fueling infrastructure alleviates fuel availability concerns of vehicle operators and helps expand the acceptance of the newer vehicle technologies in the market.

Several exemptions incentivize AFV-ownership. One very effective non-financial incentive is the high occupancy vehicle (HOV) lane access afforded to certified AFVs and plug-in electric vehicles (PEVs). Federal law allows states to exempt these vehicles from HOV lane requirements and to establish programs allowing low-emission and energy-efficient vehicles to pay a toll to access HOV lanes. Access to HOV lanes can be a significant benefit for an AFV-owner, especially in highly congested urban areas. Exemptions from vehicle weight limits support AFV ownership among medium and heavy duty vehicles by helping to level the playing field and make low-emission technologies competitive options for vehicle owners and fleet managers. For example qualified natural gas vehicles are eligible for a federal maximum gross vehicle weight limit exemption to account for the weight difference of the natural gas tank and fueling system compared to a diesel tank and fueling system. Similarly, federal law permits states to allow weight exemptions for heavy-duty vehicles equipped with idle reduction technology, such as auxiliary power units. All federal vehicle weight exemptions apply to the federal highway system; states may enact exemptions that apply to their respective state roadways.

Federal legislation also supports alternative fuels by establishing fueling infrastructure deployment initiatives. The 2015 FAST Act requires the U.S. Department of Transportation to designate national PEV charging and hydrogen, propane, and natural gas fueling corridors along major highways. Additionally, the Act explicitly authorizes federal agencies to install PEV charging stations for authorized users, including employees, at federal facilities. The installation of charging stations at the workplace will help agencies support their employees' green choices and achieve federal sustainability goals.

Programs and Resources

Through technical expertise offerings, educational resources, and public awareness campaigns, additional federal efforts have helped to support AFV development and deployment. Some programs, like the U.S. Environmental Protection Agency's Clean School Bus program, focus on specific vehicle types. Other programs and initiatives, such as the National Clean Diesel Campaign, address specific fuel types. Fuel- and technology-neutral programs, such as DOE's Clean Cities program, support a range of actions in the transportation sector to advance alternative fuels and energy-efficient vehicle technologies, all in support of goals specifically spelled out in federal legislation.

Looking Forward

Federal law supports alternative fuels in a variety of ways and for a broad range of stakeholders. Funding research and development and incentivizing alternative fuels and AFVs encourages innovation and adoption, fosters economic growth, and makes the nation's fleet more diversified, resilient, and less susceptible to fuel price volatility. While specific programs and incentives may change over time, administrative and legislative support at the federal level continues to play a pivotal role in facilitating the development of a sustainable transportation future.