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White House’s EV tax credit implementation in the spotlight

Possible side deals with U.S. trading partners on "critical minerals" rile lawmakers

Senate Energy and Natural Resources Chairman Joe Manchin III, D-W.Va., speaks during a Feb. 16 hearing on global energy security one year after Russia's invasion of Ukraine.
Senate Energy and Natural Resources Chairman Joe Manchin III, D-W.Va., speaks during a Feb. 16 hearing on global energy security one year after Russia's invasion of Ukraine. (Tom Williams/CQ Roll Call)

Lawmakers on both sides of the aisle are scrutinizing how the Biden administration handles new incentives for buying electric vehicles, with the first formal guidance on which cars qualify for subsidies expected this week.

Senators who tossed critical support behind tax credits that can knock up to $7,500 off the price tag of electric and hydrogen-powered vehicles have seized on budget hearings this month to press for their views on implementation.

Sen. Joe Manchin III said last week he’s concerned with the guidance expected from the Treasury Department on requirements that a portion of minerals used in vehicles’ batteries be sourced from friendly nations. The West Virginia Democrat held off for months on supporting the budget reconciliation package that ultimately spent $270 billion on tax credits aimed at boosting clean energy and cutting greenhouse gas emission.

Manchin got on board after changes including conditioning half the $7,500 credit on a portion of minerals being extracted or processed in the U.S. or in a country where a free trade pact with the U.S. is in effect. Minerals recycled in North America can also qualify.

Manchin pressed Treasury Secretary Janet L. Yellen on what the department is planning during a Financial Services Appropriations Subcommittee hearing last week, emphasizing the importance of a distinct definition of “processing” in the law. Processing refers to refining “critical minerals” like lithium after they’ve been mined, and it’s a part of the supply chain that China dominates.

Manchin also raised a concern about how far the administration could go in striking targeted trade deals to allow more countries to meet the critical mineral standards, on top of the 20 that already have formal free trade agreements with the U.S.

Treasury signaled in December that it will likely take a broad view of what qualifies as a free trade agreement country, and the Biden administration is pursuing mineral-specific agreements with Japan and the European Union. Yellen told reporters in India last month those deals wouldn’t need congressional approval.

Manchin said Thursday that he’s comfortable with that effort as long as deals are struck only with European and other allied nations, and that they follow the intent of the law as an energy security measure. “As long as they stay within the contents of the bill,” he said. “They cannot rewrite a piece of legislation we didn’t pass. They’ve got to stay with what we passed.”

[Manchin pushes stricter electric vehicle credit rules]

He said at the Appropriations subcommittee hearing that he’d have a problem with trade deals extending to countries that lack secure supply chains and could fall prey to influence from countries like China, Russia, Iran and North Korea.

“When we wrote the bill . . . we wrote it with free trade agreements,” Manchin said. “For us to have a free trade agreement, we knew that there had to be more of a confidence that we’re going to have a pretty good supply chain and not be held hostage.”

Yellen told Manchin that she believed they were on the same page about the critical mineral rules, and added that the administration would work closely with him and fellow lawmakers on any trade agreements.

But the senator who crafted much of the law’s tax credit package is taking issue with a lack of consultation and transparency so far on those slimmer deals.

Senate Finance Chair Ron Wyden, D-Ore., brought up the issue in the committee’s hearing with U.S. Trade Representative Katherine Tai on Thursday, saying his staff has only received information on an initial offer made to Japan but should be seeing more. He added Finance should have final say on any trade agreements.

Tai said the administration has made information available to Wyden’s staff and Finance Committee members.

“Critical mineral agreements ought to be made public before they’re signed, and we’ll continue to stress that with the administration,” Wyden said.

In an interview after the hearing, Wyden described the push for transparency on trade negotiations as a longstanding concern he’s harbored. He pointed to the importance of Finance being involved in this piece of implementation after a decadelong push to rewrite the tax code for clean energy.

He said he supports efforts to speed up the ability of companies to meet sourcing rules and qualify for tax credits but that transparency can happen at the same time.

Ways and Means weighs in

Several members of the House Ways and Means Committee share Wyden’s concerns and raised them in their own hearing with Tai on Friday.

Trade Subcommittee Chairman Adrian Smith, R-Neb., emphasized new trade pacts require congressional approval and that there’s bipartisan, bicameral concern about maintaining Congress’ oversight role.

“I cannot express strongly enough that the administration cannot just come up with new definitions of what a trade agreement is for some reason, and certainly not to give handouts for electric vehicles,” Smith said.

U.S. Trade Representative Katherine Tai testifies during a House Ways and Means Committee hearing Friday, March 24. (Tom Williams/CQ Roll Call)

Tai, who was the top trade counsel for Ways and Means Democrats before joining the Biden administration, said at the hearing that she hoped to be “as knit-up with this committee as possible” and that she’d commit to improve given feedback on the critical minerals negotiations.

Ways and Means Chairman Jason Smith, R-Mo., raised concerns about forced labor abuses in the production of cobalt and other critical minerals sourced from China and Congo. He asked if agreements with the EU and Japan will ban importation of minerals produced with forced labor from ultimately qualifying for U.S. electric vehicle subsidies.

Tai said the EU and Japan have been two of the strongest U.S. partners in efforts to end forced labor in supply chains, so she expected that to continue in new agreements.

Industry support

Still, some automakers and their allies in Congress are cheering the Biden administration’s effort to negotiate targeted trade deals and Treasury’s signals that it’s likely to interpret the law with some more flexibility.

Sen. Debbie Stabenow, a Michigan Democrat whose constituents include major U.S. automakers, said Thursday that the Biden administration is doing the right thing by moving ahead with targeted trade deals for mineral sourcing. She added that it would be difficult for the agreements to go through Congress.

Even with the administration’s efforts, Stabenow predicted the electric vehicle credits won’t be very useful in the coming years due to the stringency of sourcing mandates.

“Once [Treasury’s guidance] comes out, we will see any use of the credit in the next couple of years severely reduced,” she said. “I’m not sure anyone would qualify for the credit.”

Automakers are watching for this week’s guidance to see how the administration will treat the supply chain mandates.

Volkswagen Group of America reported lobbying on issues related to minerals needed for electric vehicle batteries in the last quarter of 2022. Ford Motor Co. disclosed lobbying on permitting for domestic critical mineral production. The Alliance for Automotive Innovation weighed in on critical mineral legislation, while the Zero Emission Transportation Association lobbied on domestic critical mineral exploration, production, processing and permitting issues.

The Zero Emission Transportation Association includes energy, utility and ride-sharing companies along with some electric vehicle manufacturers like Tesla and Rivian Automotive Executive Director Albert Gore III said in an interview that the group hopes Treasury will use flexibility in the August law to accomplish goals of accelerating electric vehicle purchases and boosting domestic supply chains without disrupting uptake in the short term.

Gore, whose father is former Vice President Al Gore, said adoption of electric vehicles will keep happening regardless, but the interpretation of tax incentives risks making fewer vehicles available to consumers at first.

Other legislative efforts like permitting for projects could also enter the mix. Gore noted that the U.S. has longer timelines for developing critical mineral sources.

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