Climate bill would create barrier to full electric vehicle tax credit

The climate deal reached yesterday by Senate Majority Leader Chuck Schumer and Senator Joe Manchin would dramatically increase consumption tax credits for electric vehicles by providing a $7,500 tax credit to people purchasing an electric vehicle made with a certain percentage of minerals mined or processed in countries with the United States. free trade agreements or recycled in North America.

But there is a catch: the electric vehicle supply chain required for the tax credit does not exist.

The minerals needed to make market-ready electric vehicle batteries – lithium, cobalt, graphite and nickel – are mainly mined, refined and processed in China and Russia or in less adversarial countries like the Democratic Republic of Congo and the United States. Indonesia that are not parties to the US Free Trade Agreement. commercial agreements (green wireFebruary 24).

This tax credit provision is raising concerns among climate activists and EV proponents that the Senate’s much-loved bill could actually limit the effectiveness of its fuel tax credit. electric vehicles by placing an incredibly high hurdle in front of automakers.

“Those things aren’t in place, and may not be for more than a decade,” said Morgan Bazilian, director of the Payne Institute at the Colorado School of Mines.

The requirement, he added, “may limit the amount of tax credits that get the full amount.”

There is currently a $7,500 tax credit for consumers who purchase electric vehicles, but it is capped at 200,000 vehicles sold per manufacturer, causing some automakers to reach that cap and no longer benefit from the credit.

The reconciliation bill would extend this benefit by lifting the limit on the number of vehicles that can benefit from the credit. President Joe Biden and many congressional Democrats wanted to remove this cap because it could hypothetically increase consumer purchases of electric vehicles and included language doing so in the House version of the “Build Back Better Act” that passed the ‘last year (climate wireJuly 21).

If signed into law, the bill would require electric vehicles by 2024 to have batteries made with at least 40% minerals mined or processed by a country party to a U.S. free trade agreement, with the percentage measured by the value of the total minerals in the battery. Minerals recycled in North America could also be included in the percentage requirement.

The critical mineral content requirement for batteries would increase to 80% by 2027.

A similar requirement would apply to battery components, requiring 100% of qualifying electric vehicle battery components to be manufactured in North America by 2029.

Half of the tax credit would be tied to mineral requirements. The other half would be related to the mandate of the battery components.

These demands are in line with Manchin’s stated political priorities. The West Virginia Democrat criticized incentives to move the United States away from fossil-fuel cars, citing the electric vehicle industry’s heavy reliance on minerals mined overseas, including China (Daily O&MApril 8).

Proponents of the bill’s language say this requirement is precisely what the United States and its allies need — a mega-market signal to automakers and mining developers that they should invest heavily in the development of a battery sector made in America.

“For too long, ‘made in America’ has ignored the beginning of the supply chain: domestically mined minerals,” said Conor Bernstein, spokesman for the National Mining Association. “The requirement that minerals for batteries be sourced from home rather than from geopolitical rivals directly supports stable, well-paying jobs in the United States that strengthen our economy, secure our supply chains, and improve our global competitiveness. “

National security hawks have long sounded the alarm that a transition from fossil fuels to electrified transportation and energy networks could increase America’s dependence on adversaries for power. supply of minerals and metals.

Abby Wulf, director of the Center for Critical Minerals Strategy at the nonprofit Securing America’s Future Energy, called the bill’s mineral content requirements “ambitious.”

“Ultimately, we hope this helps to impress on automakers how serious it is that they can’t just rely on unreliable supply chains and that they’re going to have to focus a lot more on their diversification,” Wulf said.

But Bazilian, an academic who advocates for climate action in tandem with a more robust U.S. supply chain for electric vehicles, said the percentages set by the bill could ultimately hamper the tax credit’s effectiveness. in the foreseeable future.

“Although it may become [Manchin’s] approval, and it could be very important for Manchin to get those percentages, they probably won’t be achieved,” he said.

Environmental groups agree with Bazilian’s assessment, saying the mineral needs are spoiling a potentially powerful path to accelerating the decarbonization of the US transportation system.

“All it does is cancel the tax credit,” said Brett Hartl, director of government affairs for the Center for Biological Diversity. “It’s not like automakers are deliberately neglecting an American supply chain. It just doesn’t exist right now.

Lauren Pagel, policy director of the environmental non-governmental organization Earthworks, said her group believes the language would essentially provide a subsidy for new mines in the United States and its allied countries “because now they need these mines to increase their percentages of critical minerals, so their cars can be considered clean under this bill.

“If I was an EV advocate, someone trying to incentivize more EVs to solve climate change, I wouldn’t want this provision included,” Pagel said. “I would like everyone to receive the tax credit if they buy an electric vehicle. This is the most climate-friendly and realistic solution.

Joe Britton, executive director of the Zero Emission Transportation Association, which represents EV-related businesses large and small across the United States, from lithium mining companies to EV startups, said his group had been pushing for “credit more universally accessible” because “if you limit credit, you limit the public benefits of credit.

He said he’s optimistic that if the bill becomes law, it would be a “huge accelerator” for U.S. manufacturing of electric vehicles when combined with billions of dollars in the measure for building batteries and of mineral processing facilities, as well as funds to reconfigure auto factories so they can manufacture electric vehicles.

But Britton is clear-headed about the reality of the existing supply chain, admitting that ‘people are now looking at their supply chains’ to ‘think’ about how they ‘will achieve these goals’.

“I’m not saying there’s no worry,” he said. “These will allow people to reach.”