Biden's Build Back Better Bill May Save You Up to $900 When Buying an E-Bike. Here's How the Proposed Tax Credit Works

• Increasingly popular electric bicycles may grow even more so thanks to a provision in Democrats' $1.75 trillion Build Back Better bill.
• The version passed by the House of Representatives offers some Americans a fully refundable, 30% tax credit on purchases of certain e-bikes.
• Advocates say e-bikes are crucial to U.S. efforts to fight climate change because they offer a low-carbon transportation solution.
• "We wanted to put [e-bikes] right there with electric vehicles or e-buses" as a way to reduce transportation emissions, said Rep. Jimmy Panetta, D-Calif.

Electric bicycles have soared in popularity in recent years, and a tax credit in Democrats' $1.75 trillion Build Back Better bill may fuel their rise even further.

The version of the social safety net and climate bill that was passed by the House of Representatives offers some Americans a fully refundable, 30% tax credit on purchases of certain e-bikes.

Individuals who make $75,000 or less qualify for the maximum credit of up to $900. Joint filers who make up to $150,000 can qualify for two bikes and up to a $900 tax credit on each. It phases out for taxpayers above those income levels. E-bikes with a sticker price of more than $4,000 don't qualify for the credit.

The e-bike credit has multiple champions in Congress, including Rep. Jimmy Panetta, D-Calif., who earlier in the year introduced similar, standalone legislation to incentivize e-bike purchases. Because e-bikes are a low-carbon transportation option that can replace some car trips, particularly short-mileage ones, Panetta and other advocates say they are crucial to U.S. efforts to fight climate change.

"We wanted to put [e-bikes] right there with electric vehicles or e-buses, and basically show that this is a way that we can reduce our carbon output in the transportation sector," Panetta told CNBC in an interview.

Transportation accounted for 29% of U.S. greenhouse emissions in 2019, according to the Environmental Protection Agency. That's the largest of any sector, with electricity production and industrial activity checking in second and third at 25% and 23%, respectively.

Panetta said Democrats want the Infrastructure Investment and Jobs Act, which is already law, and the Build Back Better Act, which would fund Democrats' social and spending priorities, to help accelerate a transition to more sustainable transportation modes. He said the e-bike tax credit "is an important link in that chain of those efforts to do that."

What's an e-bike?

Electric bicycles often look similar to traditional bikes. The key difference — as their name suggests — is they have a battery-powered electric motor to propel the bike forward, sometimes in addition to users' own pedaling.

In the 12 months between July 2020 and July 2021, e-bike sales jumped 240% compared to the same period two years ago, according to market research firm NPD Group.

• Some e-bikes, known as Class 1, have motors that only kick in when the rider is pedaling; the motor stops providing a boost when the bike reaches 20 miles per hour.
• The motors on Class 2 e-bikes can be used when the rider isn't pedaling. But like Class 1 e-bikes, the motor doesn't work above 20 mph.
• A third variety called Class 3 also requires the user to pedal, but its motor can assist up to 28 mph before it stops providing assistance.
• All three classes of e-bikes qualify for the tax credit provided they meet the criteria previously mentioned.

"The magic of the e-bike is it really takes the more painful edges of bicycling away," said Chris Cherry, a civil and environmental engineering professor at the University of Tennessee, who researches sustainable transportation. He's currently working on a study that examines the impact of e-bike incentives at the municipal level.

"You can keep up with traffic easier. You can fulfill all of your travel needs without spiking into a vigorous physical activity environment," Cherry told CNBC in an interview. The result, he said, is that e-bikes are attractive to a wider group of people, such as those who cannot afford to sweat while riding a traditional bike to work. They also make tasks like going to the grocery store or picking up children from daycare easier to complete by bike, he said.

Incentivizing adoption

E-bikes do not remove all of the barriers to cycling, including safety risks associated with riding on roads with poor bike infrastructure, Cherry said. But e-bikes "overcome some of them," he said. "When those barriers are overcome, people start to think about fulfilling more of their travel demands" on e-bikes instead of more carbon-intensive options like a gas-powered car.

That shift is key to maximizing the possible climate benefits of e-bike adoption, Cherry said, while acknowledging there are additional benefits to riding electric bicycles, including personal health. 

"If you really care about emissions and that's why you're buying a bicycle — and I think that's the main gist of the e-bike [tax credit] in the Build Back Better bill — you have to do it in a way that substitutes car trips," the professor said.

E-bikes tend to be more expensive than comparable-style conventional bikes, but that's where proponents hope incentives can make a difference. Panetta and other advocates, such as Rep. Earl Blumenauer, D-Ore., hope having an income-capped federal tax credit eases that potential barrier to adoption. 

"Some people need just a little incentive to make the transition to riding a bicycle, and the fact that the e-bike is so convenient and easy and fun makes it more likely that people do it," said Blumenauer, who co-chairs the Congressional Bike Caucus. "These people who make under $150,000 per household are precisely the people for whom the economic benefits are most significant."

The Build Back Better Act, after passing the House, is now being considered by the Senate, where Democrats hold a razor-thin majority. It's not clear if the e-bike tax credit will make it in a potential final version. Republican opponents of the broader legislation have criticized its price tag and many of its various spending initiatives, including the e-bike tax credit.

"The government should not be using taxpayer funds to subsidize the electric vehicle industry, whether that is for cars or bikes," Rep. Mike Kelly, R-Pa., said in statement emailed to CNBC. Kelly, a member of the tax-writing Ways and Means Committee, is co-chairman of the House Automotive Caucus. He's long opposed EV tax credits.

"Right now, this would benefit only the wealthy. This provision comes when E-bikes, specifically, are struggling to gain popularity among the majority of Americans," Kelly continued. "E-bikes are also significantly more expensive than traditional bikes, and I cannot ask the hardworking taxpayers in my district to provide tax credits for these products at a time when inflation and everyday costs are rising."

Industry impact

Mike Radenbaugh, founder and CEO of Seattle-based Rad Power Bikes, told CNBC he believes a federal tax credit could have a "big impact on our business," which, he said, is already experiencing significant growth. He said Rad has had more than 350,000 customers since launching as a direct-to-consumer business in 2015 and expects to add over 100,000 more riders over the second half of 2021 alone.

Even if the e-bike tax credit doesn't become law, Radenbaugh said the mere fact it was included in the House bill validates e-bikes as "a true form of transportation."

"Two-thirds of our customers use their e-bikes to replace miles that they otherwise would be doing in their cars," Radenbaugh said.

"Our customers are using their bikes primarily for mobility, utility, taking their families to schools and dropping them off at daycare, carrying cargo and doing food delivery and other commercial applications," Radenbaugh said. "This tax credit is one of the first times at the federal level where that is being recognized, that e-bikes are not purely recreation. They are primarily transportation."