How Inflation Reduction Act Impacts Commercial Transportation Industry

The Inflation Reduction Act put $370 billion toward climate and clean energy programs. Here’s what transportation professionals need to know.

Leonid Adobe Stock 501221203
Leonid AdobeStock_501221203

incentives for climate and clean energy programs, adding fire to the push for alternative energy infrastructure. This comes amid major global disruptions and volatile diesel prices in the energy market, with many shippers already overwhelmed with managing traditional transportation networks.

Though the act creates incentives for early adopters of alternative energy sources and equipment, it doesn’t provide many immediate actions for shippers to take. But from electric heavy-duty vehicle credits to tax incentives for renewable energy fuel blends, it accelerates the integration of alternative energy capabilities into commercial transportation networks.

Here’s what shippers, carriers and transportation logistics professionals need to know about the Inflation Reduction Act and how they can leverage data to best optimize their transportation network for cost efficiency and sustainability progress.

The Inflation Reduction Act: Key points for transportation professionals

The Inflation Reduction Act is the largest piece of national legislation ever passed to spur growth in alternative energy adoption. For the commercial transportation industry in particular, the act includes investment in two key areas: electric vehicle equipment and alternative fuel sources.

Most significantly, the bill includes a $40,000 tax credit for battery electric or hydrogen fuel cell heavy-duty vehicles. It’s important to note that this tax credit exclusively applies to class 8 commercial trucks, the heaviest duty vehicles in the commercial transport market, and that it’s intended to cover the price difference between a diesel and electric truck. But in reality, the cost to shippers with private fleets and carriers to invest in a new electric or hydrogen tractor will still be at least three times more expensive than buying a brand new diesel tractor.

The act also features incentives designed to increase the availability and cost-efficiency of alternative fuels, specifically higher blends of biodiesel, renewable natural gas (RNG) and hydrogen. Through 2024, commercial transportation companies can receive a $1 tax credit per gallon of biodiesel or renewable diesel fuel mixture, and a $0.50 tax credit per gallon of alternative fuel blends. Other key benefits include new tax credits for clean hydrogen and clean fuel production, which aim to ultimately reduce the costs associated with electric and hydrogen fuel cell vehicles.

While these features create initial momentum for alternative energy infrastructure, many of the credits and incentives won’t be enough to cover alternative energy costs in isolation. However, these credits can be stacked with other tax incentives to increase companies’ ROI on sustainable vehicles — and shorten the amount of time it takes electric and other zero-emissions vehicles to break even with new diesel trucks.

This is especially important in regions where fuel taxes and energy costs are historically very high, notably the West Coast and states along the I-90 corridor. For shippers and carriers operating in these areas, tax incentives from the Inflation Reduction Act can be combined with local credits to make alternative energy infrastructure more practical and potentially very profitable.

Despite regional variation, the Inflation Reduction Act will help make transitioning to alternative energy vehicles and infrastructure more attractive to the transportation industry at large. For shippers and carriers, a careful examination of existing energy costs, emissions output, and sustainability targets is the first step toward considering and successfully integrating alternative energy capabilities.

3 tips for optimizing your transportation network

With major shifts happening in climate change policy and renewed support for net-zero emissions, it’s a critical time to examine your transportation network and identify areas for cost and operational efficiency.

Through a comprehensive analysis of your energy consumption and absolute emissions baseline in particular, you can readily identify areas for emissions reduction and understand how climate legislation can benefit your supply chain. As you examine your transportation network, here’s what to keep in mind.

  1. Understand your network data. To strategically act on burgeoning climate legislation, take time to first understand the intricacies of your transportation network data. This information includes lane density, procurable alternative energy by state, and movement details. With a comprehensive view of your transportation network’s nuances, you can more clearly understand the impact of energy market developments on your supply chain infrastructure and plan for the integration of alternative energy sources.
  1. Create a baseline of your energy consumption and costs. Leverage your transportation network data to create a thorough baseline of your energy consumption and costs. This baseline will help you understand the costs and benefits of transitioning to tractors that consume alternative energy, and it will be critical in considering regional variation. Consumption, cost, and emissions output vary based on the logistics of each shipment, so understanding this baseline is especially important to guide decision-making. A comprehensive energy baseline also enables you to apply granular data to ROI analysis and determine the best strategy for investing in zero-emissions equipment and alternative energy sources.
  1. Implement strategies for reducing traditional diesel fuel costs. It may be difficult to think about incorporating alternative energy into your supply chain while diesel fuel prices are so volatile. Diesel prices remain very high because diesel supplies are approximately 20% below their five year average in the U.S. But you can still find opportunities for improved cost efficiency by implementing comprehensive industry benchmarking and network optimization strategies. Leveraging a third-party logistics (3PL) partner can also help form network recommendations and take the pressure off your internal logistics team.

Keeping up the sustainability momentum

The Inflation Reduction Act isn’t enough on its own to spur widespread investment in alternative energy solutions, but it is a significant catalyst. Across the country — from traditional early adopter markets to regions with lower fuel costs — this legislation can help spark momentum for reducing carbon emissions in commercial transportation supply chains.

Whether your journey to adopting alternative energy sources is in the near or distant future, you can leverage data for consistent cost and operational optimization. By refining your supply chain as a continuous practice, you can ensure your network is agile enough to adjust to legislative developments, respond to marketplace evolutions and meet new sustainability standards.