USA: The US House of Representatives is considering a bipartisan bill to provide tax credits for the purchase of new domestic freight cars and the upgrade of tank cars, the Freight Railcar Act. The bill is supported by the industry associations, Railway Supply Institute (RSI) and Rail Security Alliance (RSA).
Relevant and substantial step
The current US fleet exceeds 1.6 mln freight cars, of which about 321,000, or 19.6%, are in storage and about 200,000, or 12.5%, are more than 40 years old. According to RSA, around 250,000 cars will need to be renewed within 15 years.
The Freight Railcar Act, introduced in February, offers a temporary 10% tax credit to companies that purchase new US-built freight cars if they write off two cars in service for each new car and confirm an improvement in fuel efficiency or payload of at least 8%.
Companies that upgrade their tank cars to the DOT-117 safety standard and report an increase in fuel efficiency or payload will receive an 8% tax credit. Following the derailment of a Norfolk Southern (NS) freight train carrying highly toxic chemicals near East Palestine, Ohio in 2023, the Department of Transportation called for a more aggressive transition to this standard.
Tax credits are provided on the following conditions:
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- Tax credit period is limited to three-years,
- Each entity can claim credit for only 1,000 cars a year,
- Only cars that have been in service for four years prior to the bill’s enactment are eligible for tax credits when they are written off,
- Tax credit beneficiaries, railcar suppliers and refurbishing service providers must be private companies.
Anticipated impact
RSA estimates that the act could save 65,000 jobs in the manufacturing sector and support the railway industry, as it is predicated on the production of rolling stock in the United States. At the same time, more than 50% of freight car production for the North American market is located in Mexico. The major local players – Greenbrier, Trinity and FreightCar America have moved their facilities to the country between the 2000s and the 2020s to cut costs.
FreightCar America’s assembly shop at its Castaños plant. Source: Railway Age
According to RSA, the new rolling stock will significantly improve fuel efficiency and reduce carbon emissions. It estimates that replacing just one-third of the nearly 300,000 hoppers in service with new, higher capacity vehicles could save 4.3 mln gallons (16,000 t) of diesel in the first year of operation. In terms of CO2 emissions over 20 years, replacing hoppers, autoracks or double-stack container flatcars will reduce these emissions by 6.8, 13.2 and 3.3 mln t respectively.
Rendering of the new green steel Greenbrier gondola car unveiled in 2021. Source: GBRX
Greenbrier made environmental compliance a priority in 2021 when it unveiled a new gondola car for NS. At the time, the company emphasised that such steel would extend the service life and improve payload, resulting in lower CO2 emissions.
Previous bill versions and foreign experience
The first version of the bill was introduced in Congress as early as 2020, as its sponsors felt that action was needed to stimulate the abnormally low demand for new cars caused by COVID-19. The bill called for amendments to the Internal Revenue Code of 1986 to provide a tax credit equal to 50% of the cost of new or refurbished freight cars and proposed to reduce a customer’s tax payments by that amount over a number of years.
The initiation failed to pass and was subsequently reintroduced in Congress three years in a row, in 2021, 2022, and 2023. The last two versions offered a lower interest rate of 10%, as in the current bill, and lost provisions to compensate for the costs of recycling or raising environmental standards.
