Those Tax Incentives to Buy Electric? There's a Problem

The legislation passed by the Senate over the weekend represents the biggest federal investment in clean energy in history, reports NPR. If adopted by the House later this week, it should bring the US "within shouting distance" of President Biden's plan to cut greenhouse gas emissions in half by 2030, when compared to 2005 levels, per Axios. Part of the $369 billion investment in climate and energy programs involves tax credits to help people buy electric vehicles, notes the Wall Street Journal. But on that front, a new issue has emerged:

• American-made: The legislation has strict language on which EVs would qualify for a tax credit, stipulating that they must be made with American parts and minerals, or sourced from nations with free-trade deals with the US. For example, the credit won't fly if any battery components come from an "entity of concern" by 2024. The idea is for the US to wean itself from supply chains now controlled by China, per E&E Daily.

• The problem: The goal may be laudable, but the US supply chain in regard to such materials "is in its infancy," notes Politico. The language is so strict that not a single electric vehicle on the US market would currently qualify for a full subsidy.
• Warning, I: "Americans who would otherwise receive the credit today (say, the family test driving a car this weekend and on the fence about whether to make the switch to an EV) will no longer be able to take advantage of this financial incentive to purchase an EV," warns the industry group Alliance for Automotive Innovation. "The $7500 credit might exist on paper, but no vehicles will qualify for this purchase incentive over the next few years."
• Warning, II: The alliance represents GM, Toyota, and Volkswagen, notes Reuters, and it sees the new rules as a "major setback" toward the goal of having up to half of vehicle sales by 2030 be of the electric variety. The group counts 72 EV models currently on the market, and it says 70% would immediately become ineligible for even a partial tax break.
• Workaround? Don't count on lawmakers weakening the language because the bill provides a tough-on-China message in an election year. The solution on the tax credits, then, might lie in good old-fashioned bureaucracy, write Tanya Snyder and Alex Daugherty in Politico. The bill "does not expressly outline any waivers. But how the requirements are defined and applied by the Treasury Department and IRS could provide some wiggle room." The model for this exists in the "Buy America" program, which requires road and transit projects to be made with American materials. Over the years, plenty of "wiggle room" has emerged, and the story digs into the details on how this might apply to the EV market, perhaps through "creative definitions" on battery sourcing. Also expect a push to delay some of the requirements from taking effect, to allow the US supply chain to mature.

(More electric vehicles stories.)