US plans to include Europe in tax breaks for electric cars

The talks address one of the central tension points in the massive climate law which President Joe Biden signed last year – his attempt to fight climate change by encouraging the use of carbon-free energy, while creating a multitude of mining and manufacturing jobs in the United States

Automakers, eagerly awaiting Treasury guidelines, see the $7,500-per-vehicle incentive as a tool to meet Biden’s goal of having electric cars and trucks account for half of all sales new vehicles by 2030. Allowing more types of vehicles to qualify for the tax breaks could also fulfill Biden’s promise to consumers to help make electric vehicles more affordable.

But keeping the door open to EU suppliers could irritate some domestic automakers, as well as US mining companies and battery manufacturers who say the “Made in America” provisions of the Climate Act are crucial to creating a national supply chain for clean energy. Congress included these provisions in the Inflation Reduction Act in a bid to wean the United States off battery imports from China, which dominates the global industry.

Treasury guidance on tax incentives coming next week will spell out the details of how the agency proposes to weigh the mining and processing of minerals used in electric vehicles and their components. The initial version will exclude minerals mined and processed in the EU, the official said.

The United States and the EU have been negotiating for weeks on how European industry could benefit from these incentives, but the talks have not yet resulted in an agreement. The Treasury’s release of the proposal next week will begin a 30-day comment period, after which the agency will release a final version.

If the US and EU are able to successfully conclude these talks by then, the EU could be granted special status as a free trade partner for critical minerals under the Climate Act – an idea that was first presented in a white paper published by the Treasury late last year. . The United States and the EU currently do not have a free trade agreement.

The administration also faces potential objections from Sen. Joe Manchin (DW.Va.), a key climate law negotiator, who has lambasted the Treasury. past management of electric vehicle incentives, accusing it of undermining the IRA’s domestic content requirements. But Manchin, in his remarks on Thursday, seemed open to extending car credit to European minerals.

“I have no problem with the EU – our allies, I have no problem with that,” he told reporters.

European leaders have for months expressed anger over the domestic content provisions of the Climate Act, saying they would effectively block their industry from entering the growing US market.

While European companies are already entitled to half the $7,500 credit if they assemble cars in North America, the EU is battling with the US for the remaining $3,750 in incentives. This provision requires that 40% of the value of critical minerals – which the Treasury said in its December white paper would include battery electrodes – must be mined or processed in the United States or in a country with which the United States has a free trade agreement. . This level increases to 80% by 2027.

US industry now depends on imports of these battery components from China, as well as South Korea and Japan. But several US-based companies announced plans to spend billions of dollars building their own factories to produce them after Biden signed the climate law last summer.

The US-EU talks gained new momentum after Biden and European Commission President Ursula von der Leyen met in Washington earlier this month when they engaged in a joint statement to work on the issue.

In last year’s white paper, the administration said it believed it had the power to create a targeted free trade partnership through the Climate Act.

In contrast, some lawmakers have questioned whether the executive branch could unilaterally grant free trade status even for limited purposes without congressional approval.