Panel Argues Over Effects of EV Tax Credits Aimed at Boosting North American Battery Production

The electric vehicle consumer tax incentivesmake it harder for Europe and the U.S. to find agreement on how to measure the carbon intensity in traded steel, and box out steel that was produced through non-economic overcapacity, argued Jennifer Safavian, CEO of Autos Drive America. Her trade group represents foreign-owned automakers with American operations (other than the European company that makes Jeeps and Chryslers).

Safavian was a panelist Oct. 27 on a Washington International Trade Association webinar on trade, climate and electric vehicles, and she argued that the design of the tax credit in the Inflation Reduction Act would slow the EV transition. She said that before the change in law, 60 models were eligible for the credit, and now, 18 are. (According to the Energy Department, it's 24, including some from her member companies, BMW, Nissan and Volvo).

What changed in August is that only cars assembled in Mexico, Canada or the U.S. can qualify -- but in January, the terms change again, which means the dominant firm in the EV space, Tesla, as well as the Chevy Bolt, could become eligible again, as the manufacturer cap ends.

However, what's not known is how many cars will be eligible in January, because by then, it won't be enough to have a NAFTA-region assembled car. You'll also have to satisfy content requirements for the EV battery components and the critical minerals in the vehicle. Safavian said that time is needed to build out the regional supply chain for those items. "North America is not equipped to provide the critical minerals and battery components," she said. "The supply chains will struggle to catch up to demand."

Technically, the critical minerals are not limited to North America, as they can either be refined or mined in any country that the U.S. has a free-trade agreement with -- such as Chile and South Korea. But starting in 2025, none of the minerals can be processed in China, which does the lion's share of the processing for most of the minerals on the list.

Ben Beachy, vice president of manufacturing and industrial policy at the BlueGreen Alliance, a coalition of labor unions and environmental nonprofits, said you have to get factory workers to believe that their jobs will survive a transition away from a fossil fuel economy in order to get bills passed. Sen. Joe Manchin, the moderate Democrat from the coal stronghold of West Virginia, insisted that he would not support EV incentives unless there were levers to reduce dependency on Chinese inputs.

Beachy said he understands the concern that the strict rules of origin could slow deployment of EVs in the short term. About 6% of car and truck purchases last quarter in the U.S. were EVs. But he said that the IRA also includes tax credits for battery manufacturing and minerals processing worth billions, and that "can help ease those constraints."

David Henig, director of the U.K. Trade Policy Project at a think tank called the European Centre for International Political Economy, said he was just visiting Brussels, and, he said, "I’ve rarely come across such an outburst of hostility and concern. They really dislike this intently."

Henig believes that both the planned EU carbon border adjustment mechanism and the IRA are more about protectionism than using trade to fight climate change.

When asked by International Trade Today whether the administration has room to delay the timelines for battery and critical mineral content, to allow time for North American factories and mines to begin operations, panelists said it's hard to know what would happen.

Beachy said, "I’m certainly not discounting the opportunity for shooting for rules that serve dual goals," but also argued that with the scale of investments in the works, more cars will be eligible soon.

Safavian said, "Obviously, if Congress were to clarify or make some corrections to this law, that would be the cleanest way for this to be done. We all recognize the difficulty in that."

She noted that Treasury Secretary Janet Yellen, whose agency is responsible for promulgating rules for the tax credit, said the "law is what it is," this week, and most interpreted that as her saying "there’s not a lot she can do on this front."

"It’s unclear how far they can go or will be willing to go," she said.

She agreed with Beachy that the subsidies for manufacturers in EV batteries and mineral processing will help create the regional supply chain the law requires for eligibility. "But I think what he neglects and the law definitely neglects -- all of that takes time. None of it happens in a year. This law does not take that into account at all."