Washington Dems target Tesla by taxing zero-emission vehicle credits

Washington state lawmakers marked Earth Day with a controversial new policy that critics say takes aim at electric vehicle (EV) giant Tesla. Substitute House Bill 2077, narrowly approved in the House with a 52–45 vote, introduces new excise taxes on manufacturers that generate or bank large volumes of zero-emission vehicle (ZEV) credits, potentially hitting Tesla hardest. These emissions credits can be sold to other companies so that those companies can use them to offset their total emissions.

The bill imposes a 2 percent tax on sold ZEV credits, a 10 percent tax on banked credits, and an additional levy of up to 50 percent on pooled credits. The move has been widely interpreted as a direct response to Tesla’s dominant position in the ZEV credit market. Six Democrats broke ranks to join all Republicans in opposing the measure, underscoring its divisive nature.

The main focus of the bill is a tax on manufacturers that either sell or accumulate more than 25,000 ZEV credits per year. Supporters of the bill say the revenue will be used to expand EV affordability and improve the state’s charging infrastructure. Critics, however, see it as a targeted attempt to siphon profits from Tesla—profits largely derived from the very green energy policies the state has championed.

According to The Wall Street Journal, the tax is viewed by many as emblematic of Washington progressives’ willingness to create new revenue streams from nearly any source, even if it means penalizing a company helping to lead the EV transition. The Washington Policy Center noted that although Tesla accounted for less than 10 percent of all vehicles sold in the Evergreen State last year, it holds around 54 percent of the state’s emissions credits.

The state’s embrace of California-style emissions rules in 2020 set an ambitious timeline to phase out gas-powered vehicles by 2035. Starting in 2026, 35 percent of new vehicle sales must be electric or plug-in hybrid, increasing to 51 percent in 2028 and 68 percent by 2030. Manufacturers falling short of these mandates will need to buy credits from other automakers that exceed their targets, like Tesla.

But lawmakers in Olympia argue the current system unfairly benefits companies that have no internal combustion legacy to balance out. According to the bill, while lowering emissions is critical, “the creation of these tradeable and bankable credits creates the opportunity for a financial windfall accruing to firms that are not burdened by the legacy production of internal combustion engine vehicles.”

That firm, in many minds, is Tesla.

Critics argue the bill is punishing Tesla because of Elon Musk’s work with the Trump administration and the Department of Government Efficiency.  

State Rep. Jeremie Dufault (R-Selah) said during debate of the bill on the House floor, “This bill taxes one company in Washington state. That is the wrong direction for tax policy, especially when the proponent is an outspoken political advocate.”

Republicans have fired back at Democrats with legislation of their own, proposing a ban on taxes that apply solely to one company or individual. While unlikely to pass, the GOP bill highlights concerns over what some see as punitive and politically motivated tax policy. Opponents of the bill argue that Tesla, far from being part of the climate problem, is part of the solution. Punishing it through selective taxation could set a dangerous precedent—and may even lead to higher prices for emissions credits, if Tesla adjusts for the tax in its pricing.

State Rep. Travis Couture (R-Allyn) said the bill will lead to fewer zero-emission vehicles in the state because they will become more expensive. As The Journal noted, there is nothing to stop Tesla from boosting the price of the credits to help recoup money lost from the new tax.

Couture said on the House floor, “I think there’s going to be more F-150s on the road as a result of this bill because you’re de-incentivizing it with this tax.”