Biden May Give European Automakers US Tax Credit for Battery, Critical Mineral Production

The United States will negotiate a revised agreement with the European Union that could grant tax credits to European producers of critical minerals like lithium and nickel, which would allow them to produce electric car batteries.

After a meeting between President Joe Biden, and President of the European Commission Ursula von der Leyen on March 10, the leaders agreed that they would start talks about the future. “Made in America” The Inflation Reduction Act, (IRA), contains a provision that the EU maintains. “protectionist” Russian oil and gas is an obstacle to our freedom from our dependence.

Biden and von der Leyen didn’t ask questions following the meeting, but they issued a statement Joint statement That was the United States and European Union. “are taking new steps to deepen our economic relationship as we build the clean energy economies of the future and address shared economic and national security challenges.”

The leaders made a commitment to each other. “addressing the climate crisis, accelerating the global clean energy economy, and building resilient, secure, and diversified clean energy supply chains” This is causing a review of IRA “Made in America” policy.

“By building and strengthening our own clean energy industrial bases and investing in the industries of the future, the United States and the European Union will create good-paying jobs and spark virtuous cycles of innovation that drive down costs for clean energy technologies in the global market, making those technologies more affordable and advancing a global just energy transition that will leave no community behind,” They made the joint statement.

Von der Leyen spearheaded an eight-member delegation during the Oval Office meeting that included EU ambassador to the United States Stavros Lambrinidis, trade advisor Tomas Baert, and head of political, security, and development of the EU’s U.S. delegation Claire Fitzgibbon.

Biden was not the only official to attend the meeting. Secretary of State Antony Blinken (Secretary of the Treasury Janet Yellen) and National Security Adviser Jake Sullivan (Secretary of the Treasury Janet Yellen) were also present.

Critical Minerals Gap

China is the dominant global supplier of the minerals required for the manufacture of electric vehicle batteries. Battery manufacturing is also being led by the Chinese, South Korean, and Japanese.

According to the EU, the market for electric vehicles batteries could reach $282 billion annually by 2025.

America, Europe and Britain are all launching ambitious plans for securing their critical mineral supply lines. Biden, von der Leyen and others stated that they will intensify coordination.

“We will deepen our cooperation on diversifying critical mineral and battery supply chains, recognizing the substantial opportunities on both sides of the Atlantic to build out these supply chains in a strong, secure, and resilient manner,” The statement was joint. “To that end, we intend to immediately begin negotiations on a targeted critical minerals agreement for the purpose of enabling relevant critical minerals extracted or processed in the European Union to count toward requirements” For IRA tax credit

The tax credit could be expanded “further our shared goals of boosting our mineral production and processing and expanding access to sources of critical minerals that are sustainable, trusted, and free of labor abuses,” Biden and von der Leyen said. “Cooperation is also necessary to reduce unwanted strategic dependencies in these supply chains, and to ensure that they are diversified and developed with trusted partners.

Automakers Want An EU IRA

Allowing European manufacturers to qualify for the tax credit is a recommendation from the U.S.-EU Task Force on Europe’s Energy Security, established in the wake of Russia’s February 2022 invasion of Ukraine to reduce dependence on Russian oil. It has reportedly been endorsed by U.S. Senate Natural Resources Committee Chair Sen. Joe Manchin (R-W.V.).

A provision in the IRA, adopted in November 2021, offers tax credits for electric vehicles if a percentage of source material for batteries comes from North America or countries the United States has a free trade agreement with. The United States and European Union do not have a free trade pact.

Under the IRA, battery cell manufacturers are eligible for an “Advanced Manufacturing Production Credit” worth $35 per kilowatt hour of annual capacity, which could amount to billions of dollars in incentives for manufacturers.

The EU maintains member nations are being penalized with manufacturers demanding the EU adopt its own version of the IRA. Several EU member states offer large subsidies to attract investments by carmakers and battery companies but neither the United States or the EU want to get into a “Subvention war”

During a January speech at the World Economic Forum in Davos, Switzerland, von der Leyen said the United States, EU, and other “Like-minded Partners” should form “Club for essential raw materials” to reduce dependence on communist China, which dominated the critical/strategic minerals supply line from mine to market.

Before joining Biden in the Oval Office, von der Leyen praised the IRA, calling it “It is great to see such a large investment in clean and new technologies. It is a great investment. We wish to match it.” with the EU’s “Green Deal Investment Plan.”

The EU is being pressured by European carmakers including its largest automaker Volkswagen, which has warned Europe it is failing behind in development of gigafactories because the IRA offers nearly $370 billion in potential tax credits.

Volkswagen, chemicals company Umicore, and battery producer Northvolt met with EU officials and EU’s European Battery Alliance in early March to urge it to speed up permitting and create—as von der Leyen eluded to an “IRA match clause”

The automaker wants a response from the EU before deciding on investing in planned eastern European plants, according to the Financial Times. Volkswagen plans to build six European battery factories. The first two, in Salzgitter, Germany, and Valencia, Spain, start production by 2026.

“Asian companies now lead the battery business. The Inflation Reduction Act is helping the United States catch up, but Europe is still lagging.” Volkswagen Group Components Board of Management Chair Thomas Schmall wrote in a social media post. “The IRA conditions are so attractive, Europe is at risk of losing the race for billions of investment dollars that will be made in the next months and years.”

The Biden administration is also engaging with the UK and Japan over expanding the IRA tax credit to their manufacturers as well.

Biden must balance European allies’ concerns about the provisions with objections from Congressional representatives who praised the IRA’s “Made-in-America” tax credit. In fact, it was the only aspect of the mammoth bill most Republicans had anything nice to say about.

Ukraine Resolve Reiterated

Biden and von der Leyen have vowed to sustain support for Ukraine in fighting off Russia President Vladimir Putin’s invasion. In November, von der Leyen announced that the EU would establish an International Criminal Tribunal for the Russian Federation.

Von der Leyen, European Commission president since December 2019, served in the German federal government between 2005-19, including as the nation’s secretary of defense under Angela Merkel.

“We are partners in supporting Ukraine’s fight for freedom and independence. We are making Russia responsible for its atrocious war.” she told reporter before the meeting. “We stand united in defending our values.”

Von der Leyen thanked the United States for helping Western Europe “It helped us tremendously to get rid Russian fossil fuel dependence. Your delivery of LNG was a tremendous help to us. This helped us get through the energy crisis.”

The two leaders specifically discussed how to better enforce sanctions against Russia and third-party countries supporting the invasion, which could potentially include China as it is allegedly considering providing lethal aid to Russia.

“Along with a wide coalition of partners, we have imposed rapid and sweeping sanctions on Russia that are reducing its revenue to finance its war and military-industrial base.” the joint statement said. “Putin believed he would split us. Yet, we are stronger than ever. We will not waver in our support for Ukraine, no matter how long it takes.”

Biden and von der Leyen discussed this evolving concern as well as other challenges posed by China’s ruling communist Party the CCP, but did not address those concerns in the joint statement.

Von der Leyen and Biden last met in November 2022 at the G20 in Bali, Indonesia. It was her first visit to Washington since November 2021.

“It’s great to be back, it’s a pleasure. It’s great to be back, because we are partners but also friends.” she said. “This can be felt in the work that we do together.”