Washington bureaucracy could rescue Democrats from their EV tax credit problem

Washington bureaucracy could rescue Democrats from their EV tax credit problem

There’s already a playbook for getting around geographic procurement requirements: a decades-long program called “Buy America” ​​designed to ensure road and transportation projects are made from American-made materials. The demands, especially for things like steel, which are produced more cheaply abroad, have been difficult to meet since the beginning – which is exactly why they are sometimes deviated from.

For example, while Congress enacted strict new Buy America rules in last year’s massive infrastructure bill, it was immediately waived to give states and cities more time to adjust.

And the new purchasing requirements for electric vehicles that seem out of reach at the moment could also go down the Buy America path. In fact, automakers and electric vehicle advocacy groups are already asking for more time before enforcing.

The Zero Emission Transportation Association is not seeking waivers, but executive director Joe Britton said the association and its members have been on Capitol Hill and asked Congress to extend compliance deadlines in the bill by 12 to 18 months.

“We want as much time as we can get,” Britton said. “My view is that every six months that we can get as an extension is materially beneficial.”

Where the rubber meets the road

To get a tax credit for buying an electric vehicle, the budget deal Democrats are enacting requires that at least 40 percent of battery minerals must come from North America or a U.S. trading partner. starting in 2024 and increasing from there. And by 2029, battery components should be 100 percent made in North America.

Perhaps the toughest bar, given China’s dominance when it comes to lithium-ion batteries and other minerals and components need the vehicles, the deal’s stipulation is that the credit will not apply to a vehicle that has battery components made from an “entity of concern” such as China by 2025, and no critical minerals from those sources by 2025.

No electric vehicle currently on the market would qualify. Unsurprisingly, the United States accounts for just 8 percent of global lithium-ion battery production, compared to China’s 76 percent.

In some cases, companies cannot even trace the source of minerals or sub-components of their own products.

“We are a US company that makes US products, and we believe we meet Buy America requirements,” said Desmond Wheatley, CEO and president of Beam Global, an electric vehicle infrastructure company. “However, it is very, very difficult to know the origin of the components and raw materials you use.”

“It’s a minefield,” he added. “We’re terrified that we might declare that we comply and that someone down the road might argue that we don’t, because three or four levels of origin upstream show that some things come from abroad and we don’t even know it.”

How can those requirements be waived, relaxed or tampered with?

The Reconciliation Act does not contain any explicit exemptions. But how the requirements are defined and applied by the Treasury Department and the IRS could provide some wiggle room.

Britton of ZETA said that while “the law is the law,” the Treasury Department has the power to determine how, for example, US companies are allowed to communicate with “entities of concern,” and that the IRS will decide how and when to calculate how much of a battery is foreign made.

An infrastructure trade director suggested there may be even more need for exemptions for the electric vehicle credits than for Buy America.

“Maybe it’s not apples to apples, but it’s comparing fruit,” said Jim Tymon, executive director of AASHTO, whose organization represents state departments of transportation, including those pushing for Buy America exemptions. “With a vehicle or a battery, it’s a much more detailed analysis to find out where those materials come from.”

That’s because there are notable differences between Buy America’s requirements for infrastructure projects and materials like steel, where the requirements have been around for years and the supply chain is well understood, and the requirements for private auto companies to source their battery components from a supply chain that currently does not exist.

Tymon said the temporary waiver that DOT instituted allowed infrastructure projects that had been in the planning process for years to go ahead this summer. Without this, some projects were delayed.

“We understand there’s kind of a chicken-and-egg situation here,” Tymon said. “If we can’t prove to America and Congress that we can get dollars into the community, that doesn’t bode well for us if we have to go back to Congress and push for a similar level of investment.”

GM CEO Mary Barra acknowledged on Thursday that while the domestic sourcing language in the Reconciliation Act “will help drive further investment in U.S. manufacturing and sustainable, scalable and secure supply chains,” those goals “cannot be achieved overnight.” .”

Republicans who do not support the Reconciliation Act are trying to make mineral extraction requirements even stricter.

sen. Marco Rubio (R-Fla.) plans to file an amendment to the bill requiring electric vehicles to immediately source 100 percent of their battery and battery components from the U.S. or any country where the U.S. has a free trade agreement, rather than a transition period. If Rubio’s amendment is passed, the electric vehicle tax credit would be out of reach for years to come.

But no Republicans are likely to vote for the bill, and the bill’s language is unlikely to change significantly, given the delicate balancing act needed to get all 50 Democratic senators to sign.