Yearly electric vehicle sales in the US are expected to more than double from 2022 to 2025, according to forecasts by S&P Global Commodity Insights.
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US President Joe Biden is considering adding EU member states to the list of those able to access certain benefits of the Inflation Reduction Act, a move backed by the metals industry and analysts.
After the passage of the Inflation Reduction Act (IRA), EU countries were immediately concerned that they were excluded from the incentives outlined in the law as the US moves to develop a domestic battery supply chain. The bloc called the law "market-distorting" and a risk to reaching global climate goals by changing a common objective to a "zero-sum game."
On March 10, Biden and European Commission President Ursula von der Leyen agreed to begin talks on an agreement that would allow electric vehicle producers in the US to source critical minerals, such as nickel, cobalt, copper and lithium, from the EU while keeping US buyers eligible for the IRA's $3,750 tax credit per vehicle.
US industry participants appeared open to the idea of expanding the number of trade partners, though they agreed that some trade-offs would be made, including the risk of lowering the incentives to build up a US-based supply chain.
A potential agreement could help the US meet its climate goals by improving EV affordability and adoption, analysts said."Expanding the IRA-qualified supply chain to include Europe would just allow more models to qualify for the tax credit, and at a faster pace than if it is just US and free-trade partner countries," Ben Campbell, energy storage and mobility analyst at E Source, told Commodity Insights. Campbell pointed to the slow process for obtaining mining permits in the US, which could decelerate the development of a domestic supply chain. "It's a seven- to 10-year timeline, and nickel mines aren't growing on trees," Campbell said. Expanding the critical minerals market could also improve EV affordability by giving automakers and battery producers more options for suppliers, according to industry participants. "It certainly makes the supply chain more efficient," said Greenberger.
Keeping investments in the country
However, a deal could reduce the size and number of investments in the US by de-incentivizing companies to build new mines and processing facilities inside its borders. "We have competing interests. ... If you exclude a bunch of vehicles from getting the tax credit, that's going to dampen the effect of the tax credit on the market, and you're going to get less EV adoption," Robbie Orvis, senior director of modeling and analysis at clean energy policy think tank Energy Innovation, told Commodity Insights. "However, if you allow other countries to provide those technologies, then you lose some of the onshoring and jobs benefit." NAATBatt's Greenberger warned that opening up the IRA would indirectly allow European suppliers to benefit from "something being paid for by US taxpayers," saying European chemical companies that produce cathode materials would stand to benefit greatly. Battery-makers and automakers will be closely watching how the agreement unfolds, but many have already started pursuing regional supply chains. "We were already actively pursuing opportunities to localize as much of the supply chain as possible," a spokesperson from automaker General Motors Co. told Commodity Insights. FREYR Battery, a Luxembourg-based battery producer with facilities in the US, will be "targeting regional and decarbonized supply chains" in which "a major share of the raw materials we need in Europe will be supplied from Europe, and for US from North America, but there will of course be some cross-continental supply, also including Asia," said Tilo Hauke, executive vice president for supply chain management for the company.
Nathan Niese, a partner in electrification and climate change at Boston Consulting Group, told Commodity Insights that a potential expansion of countries getting benefits from the IRA supply chain incentives would not alter the law's requirement that EV batteries and cars be assembled in the US."The production tax credit is already proving to be a major driver of new investment in the US, and no agreement between US-Europe is likely to change that much," Niese said. Greenberger said one possible solution would be for the EU to provide the US with the "same form of subsidy" within its clean energy incentives package. "You give something, and you get something in exchange," the NAATBatt director said.Biden and von der Leyen have agreed to work on plans "to coordinate our respective incentive programs so that they are mutually reinforcing," according to a joint statement.
Congress questions Biden's authority
Whether Biden actually has the authority to add countries to the list without striking a formal free-trade agreement remains a subject of some controversy. The administration argues that other trade deals might be functionally equivalent to free-trade agreements and therefore could allow countries to act as sources of key materials under the law.
"In December, Treasury issued a white paper that lays out a possible approach to identifying additional agreements that could potentially qualify," Treasury Secretary Janet Yellen told a House panel March 10. But members of both parties were skeptical that the administration had the right view of the language in the law. "The IRA uses the language 'countries with which the USA has a Free Trade Agreement in effect'. I'm surprised to hear that the administration may take the view that 'Free Trade Agreement' is undefined and open to interpretation," Rep. Adrian Smith (R-Neb.) said during the hearing. A colleague across the aisle supported Smith: "When the administration and Congress do not have a good working relationship on trade, with Congress playing its role, it doesn't end well," Rep. Earl Blumenauer (D-Ore.) said."I think that is ultimately going to be up to the Treasury and how they interpret the IRA," Energy Innovation's Orvis said. "We're all kind of eagerly awaiting the Treasury guidance and how restrictive they are."
The Treasury Department said it would release its guidance in March after missing its deadline of Dec. 31, 2022.
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