US and EU to coordinate EV incentive programmes

US and EU to coordinate EV incentive programmes

electrive.com — 2023-03-13

News from Brussels

The US and the EU want to negotiate an agreement on critical minerals for electric car batteries, said US President Joe Biden and EU Commission President Ursula von der Leyen after a meeting at the White House. The planned agreement would make EVs manufactured in the EU eligible for US tax credits, currently reserved for cars built in North America.

In addition, the deal would secure supply chains for battery production in the EU and access to the US market. That means that critical raw materials extracted in the EU would be given the same access to the American market as those extracted in the US.

“Today, the United States and the European Commission announced the launch of the Clean Energy Incentives Dialogue to coordinate our respective incentive programs so that they are mutually reinforcing,” Biden and von der Leyen said in their joint statement.

“We are working against zero-sum competition so that our incentives maximize clean energy deployment and jobs—and do not lead to windfalls for private interests,” the statement reads.

EU aims to keep production at home

The EU Commission also announced its own subsidy programme last week. In cases where the risk of relocation is high, countries will in future be able to offset subsidies offered by a non-European government, for example, in an attempt to keep the company in the EU. The Commission adopted the revised state aid rules titled “Temporary framework for crisis management and change”. The amendment initially applies only until the end of 2025.

Many EU states, including Germany, had accused the USA of distorting competition due to the so-called Inflation Reduction Act. The latter provides for subsidies of around $370bn for green technologies. To be eligible EVs must be assembled in North America. There are $3,750 in tax credits if at least 40% of the battery-critical minerals come from the United States or countries with a free trade agreement with the United States. The other $3,750 is available if at least 50% of the vehicle’s battery components come from the United States or countries with a free trade agreement with the United States. Over the years, both percentages continue to increase.

The only current loophole: electric vehicles that were not assembled in North America can also benefit from the subsidy – if they are leased and used commercially.

Because there has been more financial support in the US for the construction of battery plants and electric car factories, some manufacturers prefer locations there over ones in Europe. Volkswagen, for example, announced last week that it could build a battery plant in the US instead of Europe if the European Union did not revise its incentive programme.

Biden and von der Leyen may have yet to fully resolve the dispute over subsidies for green technologies, but the talks are a step in that direction.