What the federal spending bill means for Michigan climate, EVs

• A US Senate-passed budget reconciliation bill would cancel tax credits for EV purchases and renewable energy developments years ahead of schedule
• Experts said that could slow Michigan’s energy transition and cause automakers to rethink investments in new EV plants and assembly lines 
• The US House of Representatives is expected to vote on the bill as soon as this week

The budget reconciliation bill that passed the US Senate Tuesday and awaits a House vote would eliminate a host of federal incentives for clean energy and electric vehicle production, with significant implications for Michigan’s auto industry and energy transition.

Experts who analyzed the proposal told Bridge Michigan that if it passes the House as written, Michigan utilities will likely slow their investments in renewable energy and prolong their reliance on planet-warming fossil fuels, while automakers may again extend EV production timelines and their multibillion-dollar investments in new Michigan battery plants and assembly lines.

But so far, utilities and automakers aren’t saying much about how the bill’s proposed cuts would impact specific Michigan projects or their long-range plans. 

Here’s what to know:

What the bill says on climate, EVs

In general, the budget bill would cut taxes, with the biggest benefits accruing to the wealthy, while the federal government would spend less on Medicaid, nutrition programs, education and clean energy and more on immigration enforcement and the military. 

President Donald Trump has urged Congressional Republicans to pass the legislation, taking to social media on Tuesday to claim that if they do, the country will “explode with Massive growth” and the federal deficit will shrink.

However, the nonpartisan Congressional Budget Office has concluded that the bill’s proposed spending cuts are not enough to offset the impact of tax cuts, which means national debt that has already climbed 121% since 2015 would balloon by trillions more.

On the automotive and energy front, the Senate-passed version of the bill would rescind a host of Inflation Reduction Act spending programs that aimed to wean the US economy off of fossil fuels.

A $7,500 federal tax credit for new electric vehicle purchases would end after this year, making good on Trump’s campaign promise to eliminate what he has falsely called an “EV mandate.”

Instead, consumers buying new, US-built vehicles could claim tax deductions on their interest payments.

The bill would also end IRA-funded tax credits for clean energy production that had been expected to remain in place for several years. Instead, only solar and wind projects that begin construction within a year of the bill’s enactment or enter service by 2027 would still qualify for credits. 

The bill would also rescind unobligated funds from a host of Biden-era clean energy initiatives, including those that promote cleaner heavy-duty vehicles, reduce air pollution at schools, provide loans to speed private investment in green energy and help states develop greenhouse-gas reduction plans.

What it means for automakers

Experts expect the sunset of EV tax credits to cause a brief uptick in EV sales, as buyers rush to make a purchase while incentives are still available. But sales will likely slow down after that, leading to a long-term net loss of buyer enthusiasm.

Research firm Cox Automotive estimated that with tax credits in place, US EV sales were expected to climb to almost a third of new vehicle purchases by 2030. Without credits, the EV adoption would rise more slowly..

“It was already going to be an uphill battle to get into high double digits,” said Tu Le, founder of the advisory firm Sino Auto Insights. “This all but eliminates all that momentum.”

Related:

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There are about 85,700 electric vehicles registered in Michigan today, up from 20,001 at around the same point in 2022, and Gov. Gretchen Whitmer has set a goal to put 2 million EVs on the state’s roads by 2030.

Spokespeople for all three Detroit automakers — all of which have invested significantly to build or retool plants for EV production — declined to answer a Bridge Michigan reporter’s questions about the bill’s potential impact on their business. 

Stellantis spokesperson Jodi Tinson highlighted the company’s “variety of powertrain options, including internal combustion, hybrid and electric.”

General Motors spokesperson Kevin Kelly simply said “we’re not going to speculate.”

Ford didn’t respond to a reporter’s inquiry, although company CEO Jim Farley said this week that the company is “putting more energy and more investment in hybrids” after seeing “what happened in this first inning of EVs.”

Experts said automakers aren’t likely to be shocked by the bill’s funding revocations. Several had already delayed or downsized EV production timelines in response to slower-than-expected sales growth and anticipated changes to federal incentives.

“There’s no question” that the cancellation of tax credits will impact the market for EVs, said Glenn Stevens, executive director of MichAuto, an affiliate of the Detroit Regional Chamber. But incentives for American-made vehicles could at least partially offset the impact on automakers’ budgets.

A dozen vehicles produced by the Detroit Three currently qualify for the EV tax credits. It's unclear how many vehicles would qualify for the made-in-America deduction, but Stevens said roughly 40% of vehicles purchased in the US today are imported.

The Senate bill left intact a suite of federal tax incentives that support EV production, research and development, a move Stevens hailed as a relief for US automakers. While domestic consumers may be slow to buy EVs, the Detroit Three are competing in a global market where demand is surging.

“It’s imperative that we develop our own battery technologies for the future and our own supply chain for those batteries, because we are beholden completely to foreign sources for those right now,” Stevens said.

What it means for clean energy

In addition to ending clean energy tax credits, the bill would eliminate Biden-era rules limiting climate pollution from cars and trucks, speed up approval for oil and gas projects and reduce funding for a Department of Energy loan program that supports emerging energy technologies.

Those changes will make it harder for Michigan to reach a 2040 clean energy deadline that state lawmakers passed in 2023 along party lines, said Douglas Jester, managing partner at the energy consulting firm 5 Lakes Energy. 

“It probably doesn't keep us from achieving the goal, but it will make some difference in what technology we'll use,” Jester said, and “I do think we’ll see an increase in the cost of meeting the standard.”

With tax incentives in place, officials with DTE Energy predicted last fall that switching to clean energy to comply with Michigan’s law would save customers $1.2 billion through 2045.

Jester predicted wind and solar projects could cost up to 25% more without tax credits, prompting utilities to consider meeting more of their clean energy requirements with nuclear power or gas plants equipped with carbon capture.

Michigan's two largest utilities, DTE Energy and Consumers, both have ambitious plans to install more wind and solar arrays in the coming years. DTE has said that 32% of its energy will come from renewables by 2029, while Consumers has vowed 40% by 2030.

Both utilities won multibillion-dollar loan commitments from the Department of Energy for renewable energy projects in Michigan just before Trump took office. Neither company would share details on the status of those loans or comment on how the proposed cancellation of tax credits would impact other projects or long-term energy plans.

An analysis by the news outlet Politico estimated that hundreds of projects nationwide could lose subsidies.

What it means for the climate

Leading climate scientists have warned that society must stop emitting greenhouse gases by midcentury or risk runaway warming marked by worsening disasters, sea level rise, ecosystem loss and other dangers. 

Transportation is the leading source of greenhouse gas emissions in the US, followed closely by the electricity sector, and both the EV transition and energy transition are likely to slow as a result of the bill’s cancellation of investments in those technologies.

Beyond the clean energy funding cancellations in the budget bill, the Trump administration has forced Michigan’s Campbell coal-fired power plant to stay open longer than planned, sped up the permitting process for the Line 5 petroleum pipeline tunnel project and ordered rollbacks to tailpipe and power plant pollution limits.

Proponents of those efforts contend the US needs more fossil fuel electricity to meet growing demand from artificial intelligence data centers and other users, while critics have called them gifts to the fossil fuel industry that will ultimately harm Americans’ health and raise energy costs.

What happens next

Both the House and Senate must agree on bill language, so the Senate version is now in the House for consideration.

House Republican leadership needs a simple majority of votes to pass the bill in the narrowly divided chamber, where Republicans hold an eight-seat advantage. It faces universal opposition from the chamber’s Democrats and criticism from several Republicans, which means revisions are likely. 

In a statement posted to social media, Rep. Lisa McClain, R-Bruce Township, expressed support for the bill, writing that “a NO vote breaks the promise made to the American people,” while Democrat Rep. Debbie Dingell, D-Ann Arbor, said she was “praying” for her Republican counterparts to reject “the worst bill that we have ever been asked to consider.”