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

The United States and the European Union will negotiate a revised trade agreement that could allow European manufacturers to receive U.S. tax credits for producing critical minerals such as lithium and nickel for electric car batteries.

Following a March 10 meeting at the White House between President Joe Biden and European Commission President Ursula von der Leyen, the leaders agreed to initiate talks about the “Made in America” provision in the Inflation Reduction Act (IRA) that the EU maintains is “protectionist” and an obstacle in breaking free from dependence on Russian oil and gas.

Biden and von der Leyen did not take questions after the meeting but issued a joint statement that said 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 said a common commitment to “addressing the climate crisis, accelerating the global clean energy economy, and building resilient, secure, and diversified clean energy supply chains” is prompting a review of the 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 said in 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.

In addition to Biden, Secretary of State Antony Blinken, Secretary of the Treasury Janet Yellen, and National Security Adviser Jake Sullivan were among White House officials who participated in the meeting.

Critical Minerals Gap

The global supply of the minerals necessary for manufacturing electric vehicle batteries is dominated by China, while battery manufacturing is paced also by the Chinese and to a lesser extent, South Korean and Japanese manufacturers.

The EU estimates the market for electric vehicle batteries will be worth as much as $282 billion a year by 2025.

The United States, Europe, and the United Kingdom are launching ambitious plans to secure their own critical mineral supply lines, which Biden and von der Leyen said will be the focus of intensifying 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 joint statement said. “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 credits.

The expanded tax credit would “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 “subsidy 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 “a critical raw materials club” 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 “great that there is such a massive investment in new and clean technologies. Indeed, we want 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 matching 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.

“Today, the battery business is led by Asian companies. And while the United States are catching up thanks to the Inflation Reduction Act, Europe is more and more lagging behind,” Volkswagen Group Components Board of Management Chair Thomas Schmall wrote in a social media post. “The conditions of the IRA are so attractive that Europe risks to lose the race for billions of investments that will be decided in the coming 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 jointly supporting together Ukraine that fights for freedom and independence. We are making Russia pay for its atrocious war,” she told reporter before the meeting. “We’re strongly aligned, defending our values.”

Von der Leyen thanked the United States for helping Western Europe “enormously when we wanted to get rid of the Russian fossil fuel dependency. You helped us tremendously by delivering more LNG, you helped us 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.

“We, along with a broad coalition of partners, have imposed swift and sweeping sanctions that are reducing Russia’s revenue to fund its war and its military-industrial base,” the joint statement said. “Putin thought that he would divide us, and yet we are more united than ever. We stand together in our unwavering support for Ukraine for as long as 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 a pleasure to be here, to be back again. It’s good to come back here because we are not only partners, the European Union and the United States are good friends,” she said. “This could be felt through all of the work that we’re doing together.”